The Federal Reserve Act authorizes any reserve bank, with the consent of the Federal Reserve Board, to establish banking accounts, appoint correspondents, and set up agencies in such foreign countries as it may deem best for the purpose of purchasing, selling, and collecting bills of exchange, and further authorizes the reserve bank to buy or sell, with or without indorsement, through such correspondents or agencies, bills of exchange arising out of actual commercial transactions, and to open and maintain banking accounts for such correspondents or agencies. These powers are ample for carrying on foreign business.

The Federal Reserve Board was reluctant to let the reserve banks establish such agencies abroad, on the grounds that the condition of business in foreign markets was too disturbed by the war, that foreign operations should not be engaged in until the domestic aspects of the federal reserve system had been fully developed, and that pioneering should be done rather by member banks. On February 13, 1917, however, the Philippine National Bank was designated by the reserve bank of San Francisco as its agent for the Philippine Islands. The arrangement includes the maintenance of reciprocal accounts, the collection of drafts and claims and, when desired, the purchase of bills by either bank for the other or from the other for its own account, if conditions favor and such business is deemed mutually desirable. When as a result of the war the United States became a creditor nation and financial operations of huge size developed between this country, England, and France, the board permitted the reserve bank of New York to appoint as its foreign agents the Banks of England and of France (December 24, 1916, and February 28, 1917), and to become the American agent of these banks. Other federal reserve banks may participate in the agency relationship with these foreign banks upon the same terms and conditions as the New York bank, if they so desire. It is probable that the system will develop more and more along the line of the establishment of such foreign agencies. The New York bank has also entered upon mutual agency relations with the Bank of Japan (January 23, 1918), and has now, or has had during the war, relationships with De Nederlandsche Bank, Norges Bank, Sveriges Riksbank, De Javasche Bank, and with the governments of India, Argentina, Bolivia, and Peru. Most of these relationships were arranged to stabilize foreign exchange. The item, Gold Held with Foreign Agencies, appeared for the first time in the statement of the federal reserve banks under the date of June 23, 1917.