If the Federal Reserve Is Abolished, What Then?

By Mark Korba, Senior Editor

NEW YORK (CNBC) -- Many critics of the Federal Reserve won't be satisfied until the central bank is shut down for good.

But abolishing the Fed only raises the bigger issue: What would--or should--be in its place?

The debate is hardly new. Efforts to set a cohesive national monetary policy through a central bank in the U.S. have been many and turbulent.

However, pushing the Federal Reserve building into the Potomac River wouldn't be easy. Let's see how the process could play out.

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What has to be done?

The first thing to do in getting rid of the Fed is for Congress to repeal the 1913 law--and the subsequent amendments--that set up the current Federal Reserve.

Born out of the 1907 depression and following 80 years without a Fed-like institution, the law was created to implement currency reform designed to stop financial panics and to provide an emergency reserve of money for the economy.

The Fed's mandate grew to include setting certain interest rates, controlling inflation, regulating banks, and "reaching full employment."

So what are the chances of a repeal? Even with the vocal criticism of Fed bashers like Congressman Ron Paul (R-TX), not much, says professor John Allan James from the Lubin School of Business at Pace University, who is critical of some Fed policies.

"It would take the two houses of Congress 10 to 20 years, in my opinion, to get the required votes to tear the system down or alter it in any major fashion," James explains.

If the law is repealed?

But suppose the law were taken off the books? The Fed's job--in simple terms--is to manage the nation's money supply and achieve the sometimes-conflicting tasks of full employment, stable prices while fighting inflation or deflation.

How would the U.S. economy then function? Something has to take its place, right?

Global markets would also need some sort of economic direction from the U.S. The Fed manages the dollar -- and as the world's leading currency, a void left by a Fed-less America could throw those markets into chaos with uncertainty about who's managing U.S. interest rates and the American economy.