14 ( g ) was added to the federal reserve act to empower the board to prescribe specific regulations regarding a federal reserve bank ’ s foreign relationships, and in that same year the board issued regulation n – relations with foreign banks and bankers – which specifically addresses the board ’ s “ special supervision ” over this area that is required by the act. as originally drafted in 1933, regulation n required, among other things, the consent of the board prior to entering into any negotiation or agreement with any “ foreign bank or banker. ” in 1941, congress expanded the reserve banks ’ 14 ( e ) authority to include holding foreign accounts for institutions other than its own foreign correspondents and agencies ; this was done by adding “ foreign banks or bankers, or foreign states ” to the account eligibility list. the board subsequently amended regulation n to cover relationships with “ foreign states ” as well. overall, the regulation provides a basis for the board ’ s role in 6 / 8 bis central bankers'speeches overseeing the new york fed ’ s foreign official account activities. 8 economic historians have cited several factors for this situation, including regulatory restrictions on foreign branching by u. s. banks, prohibitions on u. s. banks from offering dollar trade financing, and until 1914 the absence of a central bank with market making authority. inertia from the long - standing dominance of london banks and the pound sterling under the gold standard is also cited. see barry eichengreen and marc flandreau, “ the federal reserve, the bank of england, and the rise of the dollar as an international currency, 1914 – 1939, ” open economies review 23, no. 1 ( 2012 ) : 57 – 87. 9 in his report on the discount system in europe, paul warburg wrote that the “ annual tribute to europe resulting from our primitive financial system is not merely a waste of money, but reflects upon the dignity of a nation and economic importance of the united states. ” see paul warburg, the discount system in europe ( washington : government printing office, 61st congress, 2nd session, senate doc 402, 1910 ), 9. 10 for the guarantee, from 1921 until 1974 when the new york fed discontinued the guarantee option on banker ’ s acceptances, the new york fed charged 1 / 8th of 1 % on the face amount of banker ’ s acceptances purchased on behalf of foreign central bank accountholders. dollar banker ’ s acceptances became a favored investment instrument by foreign central banks in the days

banks value these relationships so highly? 2 / 8 bis central bankers'speeches safety, confidentiality, and reliability are strong motivations for the reciprocal provision of banking and custody services among the world ’ s central banks. in particular, central banks around the world have a mutual need for correspondent banking12 and custody services to execute on core central banking functions in which the safety, confidentiality, and reliability of service provision is essential. this befits the character and role of central banks as highly risk - averse stewards of national wealth. it reflects the imperative for central banks to maintain untarnished credibility in the formulation and implementation of monetary policy, and an unblemished reputation in the operation and oversight of domestic and cross - border payment systems. and it is driven by central banks ’ responsibility to safeguard financial stability. this results in central banks often preferring, and sometimes requiring, foreign reserve managers to use the account services of fellow central banks. this is especially true for liquidity tranches of reserve portfolios where safety and accessibility are critical for the execution of core central banking functions, including fx reserve management, fx intervention, time - sensitive official payments, macro - prudential policy, lender of last resort responsibilities, and other central bank operations that may require the use of foreign assets and currencies. as stewards of national wealth in their capacity as managers of official foreign reserves, central banks seek to minimize custodial risk in the safekeeping of their foreign reserves. 13 by using a central bank custodian, the risk of loss stemming from insolvency, negligence, or unauthorized disclosure is either removed or significantly reduced. central banks do not pose counterparty risk and reserve managers ’ use of fellow central bank account services reduces the risk of disclosure of central banks ’ trading strategies. relatedly, the confidentiality of holdings and activities in central bank accounts supports the execution of sensitive operations that may require utmost discretion to avoid setting off market panics or privileging one set of market participants over another. finally, central banks ’ use of a fellow central bank ’ s account services allows them to settle in central bank money, with attendant benefits from the standpoint of smooth and reliable settlement. central bank account services and global financial stability in addition to the reciprocal benefits central banks derive from providing each other with account services in support of their mutual needs and common missions, many central banks have long recognized that their provision of account services to the global central banking community is important for supporting