The Federal Reserve Bank is typically thought of as an institution with domestic concerns. When the Fed is in the news, it’s usually about interest rates and how policy changes may affect U.S. growth and employment. But behind such closely watched pronouncements, the Fed quietly exercises enormous influence on U.S. international financial policy. One example: During the financial crisis the Fed had swapped currencies with various countries worth $583 billion.
David Zaring, a Wharton professor of legal studies and business ethics, notes that the Fed was able to essentially influence foreign affairs without oversight by Congress or the executive branch. While independence is a central pillar of the Fed’s existence, a question nevertheless arises: To what extent should the Fed disclose its intentions when considering such decisions?
Zaring and Wharton professor Peter Conti-Brown, also a professor of legal studies and business ethics, co-wrote “Shining a Light on the Federal Reserve’s Foreign Affairs,” to explore how the Fed is interested in its domestic pursuits, sometimes to some inconsistency with the way it deals with its foreign counterparts.
“The Fed is increasingly engaged in relationships with other central banks and banking regulators, and that a lot of its foreign policy and domestic policy initiatives are compounded by the fact that it’s interacting with them,” says Zaring.
Read more at Knowledge@Wharton.
