Monetary Policies and Banking Regulations in Cameroon
Abstract
Monetary policy is the program of action undertaken by monetary authorities to control and regulate the supply of money and the flow of credit to the public with a view to achieving pre-determined macroeconomic objectives. The objectives of monetary policy are the same as those of macroeconomic policy, which include:
Maintain a high growth rate
High rate of employment
Stabilization of prices, output and employment
Ensure equity in income distribution
Balance of payments equilibrium
Stability of foreign exchange
Monetary instruments are generally classified under two categories:
Quantitative measures, and
Qualitative or selective credit controls
Quantitative measures of monetary control are also called ‘traditional’ measures and are the following:
Open market operations
Discount rate or bank rate policy
Cash reserve ratio
Qualitative or selective credit controls include
Credit rationing/special deposits
Change in lending margins (effecting changes in required mortgage property-land, building, shares etc.)
Moral suasion
Direct controls
The transmission mechanism describes the channels through which changes in money supply impact the real variables of the economy. The stages and ways in which changes in the money supply affect the economy are subject to debate among economists (mostly the Keynesians and the monetarists).
The Keynesian transmission mechanism
According to Keynes, an increase in the supply of money leads to an increase in the cash balances that people hold. Economic agents use the excess cash balances to buy financial assets (bonds). An increase in the demand for bonds leads to an increase in the prices of bonds and a fall in the interest rate. The fall in interest rates leads to an increase in investment by firms. The lower cost of borrowing may equally encourage household consumption spending. The increased investment and consumption increase aggregate demand which in
Monetary policy is the program of action undertaken by monetary authorities to control and regulate the supply of money and the flow of credit to the public with a view to achieving pre-determined macroeconomic objectives. The objectives of monetary policy are the same as those of macroeconomic policy, which include:
Maintain a high growth rate
High rate of employment
Stabilization of prices, output and employment
Ensure equity in income distribution
Balance of payments equilibrium
Stability of foreign exchange
Monetary instruments are generally classified under two categories:
Quantitative measures, and
Qualitative or selective credit controls
Quantitative measures of monetary control are also called ‘traditional’ measures and are the following:
Open market operations
Discount rate or bank rate policy
Cash reserve ratio
Qualitative or selective credit controls include
Credit rationing/special deposits
Change in lending margins (effecting changes in required mortgage property-land, building, shares etc.)
Moral suasion
Direct controls
The transmission mechanism describes the channels through which changes in money supply impact the real variables of the economy. The stages and ways in which changes in the money supply affect the economy are subject to debate among economists (mostly the Keynesians and the monetarists).
The Keynesian transmission mechanism
According to Keynes, an increase in the supply of money leads to an increase in the cash balances that people hold. Economic agents use the excess cash balances to buy financial assets (bonds). An increase in the demand for bonds leads to an increase in the prices of bonds and a fall in the interest rate. The fall in interest rates leads to an increase in investment by firms. The lower cost of borrowing may equally encourage household consumption spending. The increased investment and consumption increase aggregate demand which in
References: Belda P. (2006), “Cameroon”. MTH Multimedia S.L., -Paris Prof Njong Aloysius, (2014) Lecture notes on Monetary Policy and Banking Regulation Catholic University of Cameroon, Bamenda (CATUC), Cameroon Code of Ethics of Microfinance Institutions, ANEMCAM, MINFI, CNC (2010) Websites http://www.beac.int http://www.businessdictionary.com http://www.economywatch.com/economic-statistics/country/Cameroon/ http://www.indexmundi.com/facts/cameroon/commercial-banks-and-other-lending http://www.minfi.gov.cm http://www.worldbank.org/en/country/cameroon