The Early and Roaring Twenties of the Federal Reserve (1914-1928)
The Federal Reserve System began operating during the outbreak of World War I (1914-1918). Although the United States remained neutral until 1917, the war had an immediate impact on the economy. Capital flowed from war-torn Europe into the United States, which became the main supplier of weapons and supplies to the Allies, primarily through massive loans for financing. The New York financial market rapidly expanded, and the US dollar began to replace the pound in international transactions. Many warring countries suspended the gold standard to print money to fund wars, while the United States maintained the gold standard, leading to a surge in gold inflows. By 1917, the United States held about one-third of the world’s central bank and Treasury reserves (approximately 11000-12000 tons). By the 1920s, the share of US reserves had increased to about 40%. At the end of the war, the United States became the world’s largest creditor country, funding most of the Allied war expenses, and the global financial center shifted from London to New York. By the mid-1920s, the US dollar had become a strong rival to the British pound as a reserve and loan currency. However, the imbalance has intensified: the United States has accumulated a large amount of gold reserves and actively borrowed from foreign countries, while most parts of Europe are still deeply mired in post-war debt and economic fragility.
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