After yesterday's bonkers adventure, we're back to regularly scheduled programming (#740296, #743344).

One trope – especially among goldbugs, Bitcoiners and other hard-money types – is that the Federal Reserve is a private institution. All of the Fed's public service/official-looking press conference are for show. Look at the comment section of any article about the Fed anywhere and you’ll have some low-iq ACKCHYUALLY people saying that America’s central bank is private.

My mum asked me about the plotline in a novel she was reading where some sneaky villains buy up the shares of the federal reserve banks and end up ruling the world.

Only in fiction.

No, the Fed isn't private -- at least not unless you expand and twist the meaning of the word "private." Yes yes, the Federal Reserve system was born out of a banking cartel (JPM + secret meetings at Jekyll Island etc). I’m aware; I’ve read much of this history too.

But to assess the status of a thing one can’t simply investigate whence it came, and must instead look into what it currently does.

Now, it’s true that the regional federal reserve banks are “owned” by their community banks, which in turn are owned by their district/community banks. As a condition of membership of the federal reserve system (basically, to be a bank in the U.S.) you need to put a small amount of your capital in your local reserve bank stock -- a peculiar type of ownership that a) has no market and trades nowhere, and thus b) cannot be sold (unless exiting the banking business) c) has severely capped profits, and d) do not share in the upside of the financial institution itself.

So, what kind of "private" entity:

We can quote from the beast itself too: “owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. In fact, the Reserve Banks are required by law to transfer net earnings to the U.S. Treasury, after providing for all necessary expenses of the Reserve Banks, legally required dividend payments, and maintaining a limited balance in a surplus fund.” https://www.federalreserve.gov/faqs/about_14986.htm

EVEN worse, now that the Fed losses amount to over $200bn this year, https://www.reuters.com/business/finance/feds-paper-losses-top-200-bln-mark-2024-10-03/

...which they by sneaky accounting account for as a deferred asset. Practically what happens is that the Fed simply stopped sending the routine ~$100bn remittances to the Treasury each year -- and the private banks in no way share in that humongous profit.

Funnier example: The Swiss National Bank (SNB). It conducts monetary policy and does the things a central bank does. Yet, its shares are traded on the stock exchange. Yes, that’s right, anyone can become an explicit shareholder of SNB. Does that in any way change how the SNB performs central banking functions in Switzerland? No.

Their rights, just like in the U.S., are heavily restricted by law making them incomparable to "joint-stock companies under private law" https://www.snb.ch/en/services-events/digital-services/faq-overview/qas_unternehmen

Ryan McMaken at Mises, hardly a Fed apologist, concludes:

“In the world of central banks, however, ownership and control are entirely separate, and private ownership rarely denotes private control” It does not matter. https://mises.org/mises-wire/federal-reserve-private-bank-it-doesnt-matter

So no, for all intents and purposes a central bank is a GOVERNMENT TOOL, a portion of the Federal GOVERNMENT (not the private sector). It doesn't operate under profit-maximization constraints, it doesn't even have solvency problems as we've had a good example of in recent years.

No, the Fed is in no sane way "private."

That's today's little money lesson. Peace, J