Definition

                Deflation is a continuous or persistent decrease in the general price level of goods and services.

This may be as a result, of a fall in the cost of production, or excess supply over demand. Deflation increases the real value of money, the currency of a national or regional economy. Deflation is often used to express a declining economy.

      Causes of Deflation

1. Increase in productivity: innovative solutions and new processes help to increase efficiency which will ultimately lead to lower prices.
2.  Change in structure of capital markets: when many different companies are selling the same goods or services, they will typically lower their prices as a means to compete. The capital structure of the economy will change and companies will have easier access to debt and equity markets, which they can use to fund new businesses or improve productivity.
3.  A decrease in demand of commodities in the market: This will cause the suppliers to lower the prices of the products especially in cases where the suppliers are competing in the market.
4. Import Surplus: When the government wants to achieve an import surplus, she will export less and import more, and if the amount of money in circulation remains the same this causes deflation.
5.  Budget surplus: When the government budgets for a surplus, government income is more than government expenditure (T > G) and if the amount of money in circulation remains the same it may cause deflation.

                    Remedies to Deflation

1. Budget for a deficit: When the government budget for a deficit, government expenditure is more than government income (G > T) and this will create an expansionary effect in an economy. This will boost demand and hence increase in prices
2.  Increase wages and salaries: If wages and salaries of workers are increased it will increased their purchasing · power and thus increased the demand for goods.
3. Reduce taxes: The government should reduce the number and burden of various taxes levied on commodities. This will increase the purchasing power of the people. As a result the demand for goods and services will increase.
4. Credit expansion: the central bank and the commercial bank should adopt a policy of credit expansion to promote business and industry in the country. Bank credit should be made easily available for productive purposes.
5. The payment of public debts: During deflation period, the government can repay the old public debts. This will increase the purchasing power of the people and stimulate effective demand.
6.  Foreign trade policy: To control deflation, the government should adopt such a foreign trade policy which on one hand increases export and on the other hand reduces imports. This kind of policy will go a long way in solving the problem of deflation.

 Effects of Deflation

1. Effect on income: during deflation fixed income earners will gain because real income increases and variable income earners will lose.
2.  Effect on borrowers and lenders: During deflation borrowers will lose because the value of money is falling meanwhile Ienders will gain (creditor will gain and debtors will lose).
3. Effect on balance of payment: during the period of deflation, balance of payment may improve because of increase in the exportation of goods and decrease importation of goods.,
4. Effects on standard of living: The standard of leaving in the, country may improve because the value of money increases.
5.  Deflation increases real value of debt

Deflation makes it more difficult for debtor to pay their debts. Therefore consumers and firms have to spend a bigger percentage of disposable income on meeting debts repayment.

6. Deflation can become entrenched and difficult to end: When deflation becomes a new norm in an economy, it is very hard to change inflation expectations and to regain normal growth.
7. It may lead to real wage unemployment: This could cause real wage unemployment especially in periods of deflation when real wage rises.
8.  It is relatively more difficult for prices and wages to adjust.

1. BANKING

Meaning:

              As economic activities grow, the development of banking institutions becomes necessary to facilitate financial transactions such as payments, transfers of money, mobilization of savings and deposits. The banks constitute the core of the financial system of any given country. A bank is a financial institution whose aim is to accept deposit from the public and in turn make profit by lending part of the deposit to borrowers at a rate of interest. A Bank could also be defined as a financial intermediary between savers of funds and borrowers of funds.

Types of banking systems

           A banking system is made up of one central bank and several secondary banks.

Examples of secondary banks are commercial banks, development banks, Post Office savings banks, building societies, discount houses, Credit Unions, etc.

                     COMMERCIAL BANKS

Meaning:

               A commercial bank is a privately owned financial institution that accepts deposit of cash and other valuables, and grant loans to customers with the intention of making profit. It is a joint stock financial institution owned by shareholders which exists to make profit for its shareholders and customers. The commercial banks do this by accepting deposits from the public and in turn lending part of it to borrowers at some interest rate higher than the deposit rate. Borrowers here include private individuals, companies, public corporations and the government. The more these banks lend out money, the greater will be the profit made for their shareholders. Examples of commercial banks in Cameroon include; Afriland, First Bank, Ecobank (The Pan African Bank), National Financial Credit Bank (MTC), BICEC (Bank lnternationale du Cameroun pour L'Epargne et le Credit), Union Bank of Cameroon (UBC), SGC (Societe General Cameroun), Commercial Bank of Cameroon, and Union Bank of Africa (UBA) amongst others.

Characteristics of commercial banks

• Ownership; It is owned by private individuals called shareholders.
• Aim; It is out to make profit.
• Formation; created by signing a certificate of incorporation.
• Number of banks; There are many commercial banks in the country-
• Accepting deposit; they accept deposit from the general public.

 Functions of Commercial Banks

1. Lending Money to the Customers: Lending is the most important and profitable function of commercial banks. Money is lent to 1h general public, business firms and the government (customers) in different ways:

1. Overdraft: A bank overdraft is an amount a customer is allowed by the bank to withdraw in excess of the amount in his-or her account. It is a form of advance or credit of a specified sum that is often extended to an individual or company for a specified period of time, usually on a fixed- interest term. For example, a man has 100, 000 CFA in his account and his bank permits him to withdraw 125, 000 CFA. This means that the 25, 000 CFA which is withdrawn above the 100, 000 CFA in his account represents an overdraft. Bank overdrafts assist customers to run their day to day business activities and a fixed rate of interest is paid on the amount overdrawn. A bank overdrawn usually has a shorter period of repayment than loans.
2.  Granting of loans: A loan is an amount of money given by a financial intermediary to customers at a fixed rate of interest for a given Period of true backed by securities. A bank loan is the amount of money credited to a customer's account by the bank. This money can be withdrawn at any time by the customer with the use of cheque. Interest is paid on the total sum by which the account was credited. Most commercial banks ask for collateral securities before lending out money to customers.
3. Discounting bill of exchange: A bank discount a bill of exchange by paying a customer an amount of money less than the amount on the face value. The amount reduced is called discount because the customer needs the money before date of maturity.

2. Accepting Deposit: Commercial banks accept deposits of cash from the general public and safeguard them. This is one of the essential functions of the commercial banks having to do with mobilizing surplus cash from the public. This is the oldest function of commercial banks. There are two main types of deposits namely current account and deposit account. Cash is accepted into two types of accounts namely, current account and deposit account.

1. Current account deposits also known as demand or sight deposit are an account owned by customers from which money can be withdrawn at any time. Customers can also use personal cheques to withdraw money. Customers can take overdraft and can use this account Lo settle debts with the use of cheques, standing order, bank Giro, direct debit amongst others. Current accounts do not generate any interest like the time deposits account; rather the customer pays a charge to the bank for providing the customer with current account services.
2. Deposit account is an account with the commercial bank into which an individual or company puts his excess funds. In this account customers cannot withdraw money at any time without notifying the bank. Deposit account is often referred to as saving or time deposit and money cannot be withdrawn or transferred from it with the use of personal cheque. Customers cannot take overdraft from this account and cannot use it to settle their debt. Money is withdrawn in this account with the help of passbook. The commercial bank pays a fixed interest on this account in order to encourage the public to mobilize and deposit more money with the bank.
3. Fixed term deposit account (blocked account): It is an account where withdrawals can be done only at an agreed future date. It attracts a very high rate of interest depending on the duration of time agreed with the bank.

3.  Commercial Banks act as Agents of Payment: The bank acts as agent of payment because they accept to make payment on behalf of customers. Since the use of cheque has become an acceptable order for payment in a developed banking system, the commercial bank, therefore, act as agent of payment. This role of the bank enables customers to withdraw cash from the banks without necessarily going to the bank. The use of cheque has also facilitated the transfer of money from one customer's account into another customer's account in the case of a payment.

Commercial banks act as agent of payment on behalf of their customers with the use of cheques, standing order, direct debit, and credit transfer (Bank giro).

4. Transfer of Money: Some commercial banks facilitate the transfer of money on behalf of their customers. This is done through mail transfers, bank drafts, travelers’ cheques, telegraphic transfers, mobile phone transfers amongst others.

Other functions of the commercial banks include:

• Buying and selling of shares, stocks and government securities in the stock exchange market.
• Facilitating foreign trade between customers by making payments on behalf of the customers. using travelers cheque
• Acting as trustee to their customers in the case of hire purchases.
• Safeguarding customers' valuables such as wills jewelleries, certificates and other valuable documents.
• Giving investment advice to their customers.
• Provision of cash dispensers and night safe facilities.

               Objectives of Commercial Banks

                The commercial bank as a joint stock company has three main objectives or obligations namely; Security, liquidity and profitability

Security: The lending practice of commercial banks entails a good number of risks such as the risk of non-refund of the loan, risk of a heavy demand for cash by customers above the reserve ratio and other associated risks. If these risks are not taken care of, the banking system may lose its confidence and reputation. In order to maintain adequate confidence and security in the banking system, the banks should not lend out money entirely by means of advances, but also keep money at call and short notice in order to meet up with an unexpected increase in withdrawal needs of customers. This will ensure adequate security of the banks.

Liquidity: The commercial banks are also expected to be liquid enough to meet all the customers' needs for cash. This means that the bank assets must contain adequate supply of cash to meet all the normal and unexpected cash withdrawals of the customers. Again, other forms of liquid assets must be held by the banks in order to deal with unexpected heavy demands for cash. Given these circumstances, commercial banks must always keep cash or assets in liquid form.

Profitability: Given that commercial banks are profit seeking Joint stock enterprises, and since lending is the most profitable function of the banks, these banks have every reason to maximize lending.

 Hence, adequate investments and advances as income earning assets should be maintained in the banks' portfolio. The commercial banks must be profitable enough to satisfy the investment interest of the shareholders

                   These different obligations of security, liquidity and profitability conflict with each other. That is to maintain more of one the bank must accept less of the other. This is a serious conflict within the banking industry. The more liquid an asset is, the less profitable it becomes.

                   The bank therefore is limited in its lending policy, both by the quantity and quality of the loans to be given out. Since credit must be limited to a multiple of the liquid assets (I. e. The reserve ratio), the commercial bank must-maintain a reasonable balance between security, liquidity and profitability in their lending practices. The banks are in dilemma to solve this problem; they must always try to reconcile these objectives. This is done by maintaining a portfolio of both liquid and non-liquid assets to meet the desire of the various interest groups. To strike a proportionate balance, the bank arranges its assets in a descending order of liquidity or ascending order of profitability.