Monetary Policies and Banking Regulations in Cameroon

Topics: Monetary policy, Central bank, Bank Pages: 12 (3362 words) Published: March 11, 2014

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 turn increases output with a multiplier effect. Thus according to Keynes, the monetary policy only affects AD indirectly through changes in the interest rate. The Monetarist transmission mechanism

The monetarists believe that an increase in money supply has both a direct and indirect effects. To the monetarists an increase in money supply will mean that economic agents including both firms and households will hold excess cash balances which they will attempt to spend. Some of this spending will be on goods and services such as machinery, land, cars, healthcare, tourism, etc. This represents the direct effect on spending of the increase in money supply and is called the direct transmission mechanism. The increase in money supply will also tend to depress interest rates. This will stimulate investment and consumption further. This is the indirect effect on spending, and is also referred to as the indirect transmission mechanism.

Banking regulations are a form of government regulation which subject banks to certain requirements, restrictions and guidelines. This regulatory structure creates transparency between banking institutions and the individuals and corporations with whom they conduct business, among other things. Bank Supervision

* needed to reduce moral hazards
* ensures that banks take only sensible risks
* controls money supply
Reserve Requirements
* helps control the money supply
This paper examines the monetary policy and banking regulations in Cameroon. Monetary policies, banking regulations and legislation in Cameroon have been designed to assure the stability of the Banking system and this involves a diverse range of policies, rules, and regulations.

The diagram below gives an overview of the Banking System in Cameroon.

Overview of the Banking Sector in Cameroon

The Banking Sector in Cameroon is can be divided into two levels: The Supervisory/Regulatory Level and the Operational level. The main...

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)
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • The Federal Reserve and Monetary Policy Essay
  • Monetary Policy Essay
  • monetary policy Research Paper
  • Monetary Policy Essay
  • Essay on interest rate and monetary policy
  • monetary policy Essay
  • Monetary Policy Essay
  • Monetary Policy Essay

Become a StudyMode Member

Sign Up - It's Free