The Federal Reserve controls the US money supply, sets interest rates, and acts as the lender of last resort to banks. Here's what it actually is, how it works, and why Bitcoin's creators built it specifically as an alternative.
READING TIME: ~9 MIN
The Federal Reserve (the Fed) is the central bank of the United States. It is not a government agency in the normal sense; it is a private institution with government oversight. It controls the money supply, sets the federal funds rate, and can create money electronically. Bitcoin was created in direct response to what the Fed did in 2008.
The Federal Reserve is not a federal agency in the way the IRS or the SEC is. It is a privately owned central bank with a government mandate, structured as a system of 12 regional reserve banks overseen by a Board of Governors appointed by the President verify×DON'T TRUST, VERIFYClaim: The Federal Reserve System combines a federal Board of Governors with 12 privately capitalized regional reserve banks.Verify at: federalreserve.gov on structure ↗The Fed's own structure page documents the hybrid public-private design..
It was created in 1913 by the Federal Reserve Act verify×DON'T TRUST, VERIFYClaim: The Federal Reserve was established by the Federal Reserve Act of 1913.Verify at: Federal Reserve History: Federal Reserve Act ↗Signed into law by President Wilson on December 23, 1913., in response to a series of banking panics including the Panic of 1907.
Congress gave the Fed two mandates, together called the dual mandate:
The 2 percent number is a policy choice, not a law of nature. It was formally adopted in 2012. Before that, the Fed operated without a public numerical target.
The interest rate banks charge each other for overnight loans. The Fed sets a target range. When the Fed raises the rate, borrowing gets more expensive throughout the economy: mortgages, car loans, credit cards. When it cuts, cheaper borrowing stimulates spending.
Through open market operations (buying and selling US Treasury bonds on the open market), the Fed expands or contracts the reserves that banks use to make loans, indirectly expanding or contracting the money supply.
When normal tools stop working (interest rates already at zero, economy still weak), the Fed buys assets (Treasury bonds, mortgage-backed securities) directly by creating new money electronically. This is what people mean by "money printer go brrr." The Fed's balance sheet grew from roughly $900 billion in 2008 to over $8 trillion by 2022 verify×DON'T TRUST, VERIFYClaim: The Federal Reserve's total assets expanded from roughly $900 billion pre-2008 to over $8 trillion by 2022.Verify at: FRED: Fed total assets (WALCL) ↗The WALCL series tracks total Fed balance-sheet assets weekly. The peak was near $9 trillion in spring 2022..
In 2008, the financial system nearly collapsed due to excessive mortgage lending and the complexity of derivative products written on top of those mortgages. The Fed responded by creating trillions of dollars in new money through QE, and by dropping interest rates to effectively zero and keeping them there for years.
The Bitcoin whitepaper was published on October 31, 2008, at the height of the financial crisis. The genesis block mined on January 3, 2009 embeds a timestamp message: "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks" verify×DON'T TRUST, VERIFYClaim: Bitcoin's genesis block embeds a headline from The Times, January 3, 2009, about UK bank bailouts.Verify at: Genesis block on mempool.space ↗Decode the coinbase transaction's scriptSig on block 0 to see the message..
Satoshi Nakamoto designed Bitcoin specifically to remove the need for a trusted central bank and replace it with math and code. The timing was not coincidental. The genesis message is a direct reference to the bailouts the Fed and other central banks were coordinating in the same weeks.
The Fed is not purely a villain. Honest treatment requires engaging with the case for central banking as well as the case against it.
The site's position: the Fed is neither evil nor infallible. It is an institution with real costs and real benefits, and the case for Bitcoin does not require proving the Fed is a failure. It only requires noticing that an alternative to it, one with no central authority at all, now exists. See The Problem and How Money Works.
Last updated 2026-04-23. Not financial advice. Do your own research.