Bank Negara Malaysia

Started operations on 26 January 1959 as

Bank Negara Malaya.
Governed by the Central Bank of Malaysia
Act 2009.
- It
provides
establishment,
administration and powers of the
bank.
Its role is to issue currency, act as banker
and
adviser
to
the Government
of
Malaysia and
regulate
the
country's
financial institutions, credit system and
monetary policy.
History
18th century- Malaysia became the subject
to the British Empire. They were part of the
Straits Settlements wherein the British East
India Company controlled the territories
mainly in Southeast Asia.
Board
of
Commissioners
of
Currency
1837: Indian rupee was the sole
currency of the Straits Settlements.
Were used as penal settlements
for Indian civilian and military
prisoners.
'Botany Bays of India'
Malacca, Dinding, Penang (also
known as Prince of Wales Island)
and Singapore.
- 1867: Silver dollars were again legal
tenders
1903- Straits dollars, pegged at two shillings
and four pence (2s 4p), introduced by the
Board of Commissioners of Currency.
Private Banks were prevented from
issuing notes. Since then, the
continuity of the currency has been
broken twice:
(1)Japanese occupation 1942 1945
(2)by the devaluation of the Pound
Sterling in 1967 when notes of
the Board of Commissioners of
Currency of Malaya and British
Borneo lost 15% of their value.
PEGGED- where a currency's value is
fixed against either the value of
another single currency
SHILLINGS
AND
PENCE
(PENNIES)- Old British money
12 June 1967- the Malaysian dollar, issued
by the new central bank, Bank Negara
Malaysia, replaced the Malaya and British
Borneo dollar at par. The new currency
retained
all
denominations
of
its

predecessor
except
the
$10,000
denomination.
1985- the US dollar fell sharply causing
major losses in Bank Negara's dollar
reserves.
Following the "Plaza meeting" of G5 finance ministers in New York City.
- The bank responded by starting a
program of aggressive speculative
trading to make up these losses.
- Jaffar Hussein, the Bank Negara
Governor at the time, referred to this
strategy as "honest-to-God trading".
Late 1980s- Bank Negara, under Governor
Jaffar Hussein, was a major player in
the forex market.
Its activities caught the attention of
many; initially, Asian markets came to
realise the influence Bank Negara had
on the direction of forex market. Alan
Greenspan,
the Federal
Reserve's chairman, later realised Bank
Negara's massive speculation activities
and requested the Malaysian central
bank to stop it.
21 September 1990- BNM sold between
$500 million and $1 billion worth of pound
sterlings in a short period, driving the
pound down 4 cents on the dollar In
response,
bankers
began front
running Bank Negara's orders. Two years
later on Black Wednesday, Bank Negara
attempted to defend the value of the
British pound against attempts by George
Soros and others to devalue the pound
sterling. George Soros won and Bank
Negara reportedly suffered losses of more
than US$4 billion.Bank Negara lost an
additional $2.2 billion in speculative trading
a year later. By 1994, the bank became
technically insolvent and was bailed out by
the Malaysian Finance Ministry.
Pegging of the Ringgit and Reserves
- In
1998,
Bank
Negara
pegged
3.80 ringgit to the US dollar after the
ringgit substantially depreciated during
the 1997 Asian financial crisis.
In July 2005, the central bank
abandoned fixed exchange rate regime
in favor of managed floating exchange
rate system an hour after China floated
its own currency. This resulted in
capital flight of more than US$10
billion, thought to be due to the
repatriation of speculative funds that

entered the country in anticipation of

the abandonment of the peg: Bank
Negara's foreign
exchange
reserves increased by $24 billion in the
one-year period between July 2004 and
July 2010 (see table below). During this

period there was widespread belief that

the ringgit was undervalued and that if
the peg was removed, the ringgit would
appreciate.