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This chapter discusses Federal Reserve support of the Treasury market during World War I, which was founded on two statutory credit facilities: the original power of the Reserve Banks to discount, or purchase, loans made by member banks to their customers; and the subsequently added power of the Reserve Banks to lend to member banks. Reserve Bank discounts were limited to short-term loans “arising out of actual commercial transactions” and short-term loans to purchase or carry Treasury securities.

This chapter provides an overview of the Fed's policy structure. It addresses the following questions: Where does responsibility for monetary policy decisions reside in the Fed? What does the Federal Open Market Committee do and how is it organized? And how are other monetary policy instruments controlled? It also looks at how the politically appointed Board of Governors is chosen, how the Reserve Banks is governed, and the role of the Reserve Banks in the policy process. It also asks: should the regional structure of the Fed be modified for today's world? Should Reserve Bank presidents be politically appointed? Do member banks and directors of Federal Reserve Banks unduly profit or exert influence? It also examines what happens to the profits from Fed operations, the underlying connection between the government and the Fed, and how the government keeps tabs on the Fed. What does it mean in practice to say the Fed is independent?

Treasury officials adopted two strategies to ease fluctuations in government balances at the Federal Reserve Banks, which would have otherwise resulted from the immense flows of funds attributable to wartime tax payments and bond sales. The first was to raise (and quickly disburse) money in smaller amounts—several hundred million dollars at a time—by issuing certificates of indebtedness that could be used later to satisfy tax liabilities or to fund bond subscription payments. The second was to redeposit bond and tax receipts in Treasury accounts at commercial banks. This chapter examines the first strategy. Between April 1917 and mid-1919, the Treasury made thirty-three public offerings of bond-anticipation certificates and fourteen public offerings of tax-anticipation certificates. In view of the novelty and unprecedented scale of the operation, the certificate program worked quite well.