BANK NEGARA MALAYSIA

BANK NEGARA MALAYSIA

 Established on 26 January 1959.

 Under the Central Bank of Malysia Act, 1994

(previously it was under Central bank of
Malaya Ordinance, 1958)

 The objectives:

1. Toissue currency and keep reserves

safeguarding the value of the currency.

2.To act as a banker and financial adviser to

the Government.
BANK NEGARA MALAYSIA
3. To promote monetary stability and a sound
financial structure.

 To promote the reliable, efficient and smooth

operation of national payment and settlement
systems and to ensure that the national payment
and settlement systems policy is directed to the
advantage of Malaysia

5. To influence the credit situation to the advantage

of the country.
 OBJ1:TO ISSUE CURRENCY AND KEEP
RESERVES SAFEGUARDING THE VALUE OF
THE CURRENCY
 In1985- the USD fell sharply causing major
losses in BNM's dollar reserves.

 BNM responded by starting a program of

aggressive speculative trading to make up these
losses (Millman, p. 226).

 Inthe late 1980s-BNM was a major player in the

forex market.

 AlanGreenspan realized BNM’s massive

speculation activities and requested the BNM to
stop it.
OBJ1:TO ISSUE CURRENCY AND KEEP
RESERVES SAFEGUARDING THE VALUE
OF THE CURRENCY
 September 21,1990-BNM sold between $500 million -
$1 billion worth of GBP.

 It was driving the pound down 4 cents on the dollar

(Millman, p. 228).

 1992, Bank Negara attempted to defend the value of

the British pound against attempts by George Soros
and others to devalue the GBP.
OBJ1:TO ISSUE CURRENCY AND KEEP
RESERVES SAFEGUARDING THE VALUE
OF THE CURRENCY

 George Soros won and Bank Negara reportedly

suffered losses of more than USD $4 billion.

 BankNegara lost an additional $2.2 billion in

speculative trading a year later (Millman, p. 229).

 By1994, the bank became technically insolvent and

was bailed out by the Malaysian Finance Ministry
(Millman, p. 229).
OBJ1:TO ISSUE CURRENCY AND KEEP
RESERVES SAFEGUARDING THE VALUE OF
THE CURRENCY

 1997-Asian financial crisis.

 1998- BNM pegged RM3.80 to a US dollar

after the ringgit substantially depreciated.

 July
2005-BNM abandoned fixed exchange
rate regime in favor of managed floating
exchange rate system.

 Thisresults Bank Negara's foreign exchange

reserves increased.
OBJ1:TO ISSUE CURRENCY AND KEEP
RESERVES SAFEGUARDING THE VALUE
OF THE CURRENCY
Bank Negara Foreign Exchange Reserves

31 July 2004 USD 54 billion

31 December 2004 USD 66 billion
31 July 2005 USD 78 billion
31 March 2007 USD 88 billion
Source:
31 Bank Negara Malaysia
July 2007 USD 99 billion
OBJ2:TO ACT AS A BANKER AND FINANCIAL
ADVISER TO THE GOVERNMENT.

 BNM analyses and assesses the developments

in the international and domestic economy.

 BNM forecast on the economic condition of

the counter.

 BNM presents policy recommendations at

regular briefings to MoF and at the various
economic policy making forums at the
national level.
OBJ2:TO ACT AS A BANKER AND FINANCIAL
ADVISER TO THE GOVERNMENT.

 BNM gives regular advice to the government on

the management of its domestic and external
debts and the terms and timing of government
loan programmes.

 BNM acts as an agent for the government in

negotiations and concluding of loan
agreements.

 BNM is responsible for trading, registering,

settlement and redemption of Government
securities through its computerised systems
(RENTAS, FAST and BIDS)
OBJ2:TO ACT AS A BANKER AND FINANCIAL
ADVISER TO THE GOVERNMENT.

 BNM participates in international meetings;

 South East Asean Nation –ASEAN,
 ASEAN+3 –includes China, Korea and Japan,
 South East Asean Central Bank – SEACEN,
 Executive meeting of East Asia and Pacific (EMEAP),
 the Asia-Pacific Economic Co-operation (APEC)
 Bank for International Settlements.
OBJ3:TO PROMOTE MONETARY STABILITY
AND A SOUND FINANCIAL STRUCTURE.

 Monetary stability refers to the stability of

Malaysian Ringgit.

 Thebest way is to ensure the inflation level

remains low and stable.

 Ifthere is monetary instability, prices are

either rising or falling.

 Itwill create distortion in the long-term

economic growth of the country.
OBJ3:TO PROMOTE MONETARY STABILITY
AND A SOUND FINANCIAL STRUCTURE.

 Sound financial structure refers to:

 an environment where institutions in a financial system
are strong and can continue to meet their contractual
obligations without interrruption;
 market participants confidently enter into transactions at
prices that do not change substantially over short
periods.

 Itcreates condusive environment for

business, savers, and investors.
OBJ3:TO PROMOTE MONETARY STABILITY
AND A SOUND FINANCIAL STRUCTURE.

Financial System

Financial Institutions Financial Markets

Banking System Money & Forex
Mkt

Non-Bank Financial Capital Mkt

Intermediaries
Derivatives Mkt

Offshore Mkt
EFFICIENT AND SMOOTH OPERATION OF
NATIONAL PAYMENT AND SETTLEMENT
SYSTEMS

 Payment system provides a means of

transferring funds between parties
effectively and efficiently.
 Any failure to settle its obligations would
result in spillover effects.
 BNM will:
 Oversees the payment system
 Operates the payment systems.
 Facilitates further development of the payment system.
COUNTRY.

 Actas lender of last resort to assist banking

institutions in dealing with ST liquidity
problems.

 To
promote a good credit culture among
banking institutions, BNM operates the
Central Credit Reference Information
System.
REFERENCE
 Gregory J. Millman, Around the World on a
Trillion Dollars a Day, Bantam Press, London
and New York, 1995