Bank Negara Malaysia

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. To

issue 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  In

1985- 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).

 In

the late 1980s-BNM was a major player in the forex market.

 Alan

Greenspan 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.

 Bank

Negara lost an additional $2.2 billion in speculative trading a year later (Millman, p. 229).

 By

1994, 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.

 This

results 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: Bank Negara Malaysia 31 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.

 The

best way is to ensure the inflation level remains low and stable.

 If

there is monetary instability, prices are either rising or falling.

 It

will 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.  It

creates condusive environment for business, savers, and investors.

OBJ3:TO PROMOTE MONETARY STABILITY AND A SOUND FINANCIAL STRUCTURE. Financial System Financial Institutions Banking System

Financial Markets Money & Forex Mkt

Non-Bank Financial Intermediaries

Capital Mkt 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.

 Act

as 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