Bank Negara Malaysia
|Bank Negara Malaysia
بڠك نڬارا مليسيا
|Headquarters||Kuala Lumpur, Malaysia|
|Established||January 26, 1959|
|Governor||Zeti Akhtar Aziz|
|Central bank of||Malaysia|
|ISO 4217 Code||MYR|
Bank Negara Malaysia (BNM; literally National Bank of Malaysia, officially Central Bank of Malaysia) is the Malaysian central bank or Malaysian Federal Reserve. Established on January 26, 1959 as the Bank Negara Malaya, its main purpose was to issue currency, act as banker and adviser to the Government of Malaysia and regulate the country's credit situation. Its headquarters is located in Kuala Lumpur, the federal capital of Malaysia.
The institution will also co-host the AFI Global Policy Forum (GPF) in 2013 in Kuala Lumpur, Malaysia.
In 1837 the Indian rupee was made the sole official currency in the Straits Settlements, but in 1867 silver dollars were again legal tender. In 1903 the Straits dollar, pegged at two shillings and fourpence (2s. 4d.), was introduced by the Board of Commissioners of Currency and private banks were prevented from issuing notes. Since then, the continuity of the currency has been broken twice, first by the Japanese occupation 1942 - 1945, and again 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.
On June 12, 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, and also brought over the colour schemes of the old dollar.
In 1985, following the "Plaza meeting" of G-5 finance ministers in New York City, the US dollar fell sharply causing major losses in Bank Negara's dollar reserves. The bank responded by starting a program of aggressive speculative trading to make up these losses (Millman, p. 226). Jaffar Hussein, the Bank Negara Governor at the time, referred to this strategy as "honest-to-God trading" in a December 1988 speech in New Delhi.
In the 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 realize the influence Bank Negara had on the direction of forex market. Alan Greenspan acting the Federal Reserve chairman later realized Bank Negara's massive speculation activities and requested the Malaysian central bank to stop it.
On September 21, 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 (Millman, p. 228). 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 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).
Bank Negara Malaysia’s Foreign Exchange Reserves Management (1985 until 1993) .
James M. Alin, School of Business and Economics, Universiti Malaysia Sabah This study focuses on Malaysian central bank’s active FX reserves management. BNM started currency trading (as part the wealth diversification strategy) in 1985, did very well in the beginning but suffered huge losses in 1992 and by 1994 was technically insolvent. Against this background, the aim of this exploratory note is twofold. First, it analyzes the logic behind the decision. Second, it evaluates the probable causes of the failure. Simple game demonstrated that decision to gamble with taxpayers’ money was a dominant strategy (defection). To evaluate the probable causes of failure, we employed gamblers’ ruin simulator. The findings are as follows: BNM were eventually succumbed to the curse of gambler’s ruin i.e. although it would have made enough money in the long run, it lost so much in the short-run that it could not continue to play. Two explanations why BNM fallen into the trap; (1)BNM officials want to bet lightly enough, relative to his capital, to fend off gambler’s ruin, but heavily enough to make the desired rate of return. Unfortunately, in real life, a gambler does not know the true odds of winning on each bets, so he/she can’t look up at the optimum betting. (2) BNM did not stop playing the games after winning the desired amount which is closely related to risk aversion after prior losses, gambling with house money and break even effects.
In 1998, Bank Negara pegged 3.80 ringgit to a 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 USD 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 USD24 billion in the one year period between July 2004 and July 2005 (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.
|31 July 2004||USD 54 billion|
|31 December 2004||USD 66 billion|
|31 July 2005||USD 78 billion|
|31 March 2007||USD 88 billion|
|31 July 2007||USD 99 billion|
|31 December 2007||USD 101 billion2|
|31 March 2008||USD 120 billion3|
|30 December 2008||USD 92 billion|
Bank Negara continues to run negative interest rate differential to USD. The ringgit has appreciated gradually since the peg was abandoned and as at 28 May 2007, it traded at around 3.40 to the US dollar. Malaysia's foreign exchange reserves have increased steadily since the initial capital flight, and as at 31 March 2007 the reserves stood at approximately USD88 billion, which is approximately USD10 billion more than the reserves just prior to the peg being abandoned.
On 31 July 2007 the Malaysian reserves stood at approximately USD98.5 billion which is equivalent to RM340.1 billion. The figure increase to USD 101.3 billion in 31 December 2007 which is equivalent to RM335.7 billion.2 Bank Negara's international reserves increase further 15 days later to USD 104.3 billion or MYR 345.4 billion.45
|Tan Sri W H Wilcock||January 1959 - July 1962|
|Tun Ismail bin Mohamed Ali||July 1962 - July 1980|
|Tan Sri Abdul Aziz bin Taha||July 1980 - June 1985|
|Tan Sri Dato' Jaffar bin Hussein||June 1985 - May 1994|
|Tan Sri Dato' Ahmad bin Mohd Don||May 1994 - August 1998|
|Tan Sri Dato' Seri Ali Abul Hassan bin Sulaiman||September 1998 - April 2000|
|Tan Sri Dato' Sri Dr. Zeti Akhtar Aziz||May 2000 - Current|
The Bank Negara headquarters are located at Jalan Sultan Salahuddin; off Jalan Kuching. Bank Negara is geographically located at latitude (3.1518 degrees) 3° 9' 6" North of the Equator and longitude (101.6926 degrees) 101° 41' 33" East of the Prime Meridian on the map of Kuala Lumpur.
Bank Negara had previously maintained branches in each of the state capitals. Most of them were closed in the 1990s when retail banks began taking over most of the counter services. There are still branches maintained in Penang, Johor Bahru, Kota Kinabalu, Kuching, Kuala Terengganu and Shah Alam. Some branches were converted into currency distribution and processing centres.
A new building for the Financial Services and Resources Center (FSRC) was constructed in 2004 to house the FSRC, SEACEN, IFSB and the FMAG (the museum arm of Bank Negara). Located along Jalan Dato Onn, in front of the Tun Hussein Onn Memorial, the building was designed by renowned Malaysian architect firm, Hijjas Kasturi Associates. Officially declared opened in August 2011, the building is now known as Sasana Kijang.
The bank is endowed with certain powers through establishment of legal Acts by the Parliament of Malaysia to help fulfill its objectives. New legislation are created and current legislation is amended to reflect the needs of the time and future.
Allows the bank to confer powers, and impose duties and restrictions in relation to gold, currency, payments, securities, debts, and the import, export, transfer and settlement of property, and for purposes connected with the matters aforesaid.6
Redefined the central bank roles which was not covered in the previous act. The central bank can now define monetary policy autonomously through Monetary Policy Committee. The bank also now have greater regulatory reach and oversight than before. The act also give recognition that conventional and Islamic Banking is running in parallel in Malaysia.7
Provides licensing and regulations of Islamic banking in Malaysia6
Provides laws regarding licensing and regulation of banking institutions in Malaysia.6
Provides regulation for takaful business in Malaysia6
Provides licensing and regulations for insurance business and financial advisory business.6
Gives the bank the power to license and regulate money changing business in Malaysia.
Promotes the development of effective and efficient development financial institutions.6
Regulations of payment systems.6
- Malaysian ringgit
- International Centre for Education in Islamic Finance
- Bank Negara Monetary Notes
- Payment system
- Real-time gross settlement
- BNM Press Statements
- "International Reserves of BNM as at 31 March 2008". Bank Negara Malaysia.
- International reserves at US$104bil
- Bank Negara reserves at RM345.4b
- "BNM Administered Legislation". Bank Negara Malaysia. Retrieved 2008-07-28.
- "Bank Negara Malaysia". "Central Bank of Malaysia Act 2009 Comes into Force Today". "Bank Negara Malaysia".
- Gregory J. Millman, Around the World on a Trillion Dollars a Day, Bantam Press, London and New York, 1995.
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