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 In the United States, central banking functions are carried out by the Federal Reserve System, nicknamed "the Fed", consisting of 12, privately owned, regional Federal Reserve Banks, controlled and coordinated by the Federal Reserve Board in Washington.
The Reserve banks do not deal directly with the public, but with the US Treasury and commercial banks which are members of the system; they issue the nation's currency in bills and coin, as well as issuing and redeeming US Treasury securities, holding Treasury deposits and clearing Government checks.
The Fed also provides check-clearing facilities nationwide for the almost 6,000 commercial banks which are members of the Federal Reserve. Although there are over 14,000 individual banks in the USA, since branches are uncommon, member banks hold 85% of total commercial bank deposits, and by making loans availables they effectively create money.
To control such lending, commercial banks are required to hold reserve assets with their district Reserve Bank in a ratio to their deposit liabilities.
Reserve requirements can be changed by the Fed, but this is rare. It exercises more control over commercial banks by raising or lowering the interest rate, the so-called "discount rate", on the funds that they borrow from the Fed in order to make credit more available to their customers.
However, the most important control mechanism on both commercial banks and the value of the dollar in foreign exchange markets, is the FOMC, a New York based sub-committee of the Fed's Board of Governors. Its open market operations consist of either buying or selling US Government securities, which influences the supply of funds in the capital market, and thus interest rates and the availability of credit.
When the FOMC buys Government securities, it pays for them by checks drawn on itself which are deposited in commercial banks, who then may use those checks to increase their reserve deposits in local Reserve banks, making it possible, in turn, to give bigger loans. Thus the economy expands, there is higher employment but also inflation.
Conversely, where credit is restricted, because the FOMC is selling Government securities in an open market operation, the economy stabilises or may go into recession.
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