Bank Negara Malaysia

Bank Negara Malaysia (BNM; literally National Bank of Malaysia, officially Central Bank of Malaysia) is the Malaysian central bank. 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.

History

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.

BNM sold between $500 million on September 21, 1990 - $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, 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. [1] 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).

Pegging of the Ringgit and Reserves

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

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.^[1] Bank Negara's international reserves increase further 15 days later to USD 104.3 billion or MYR 345.4 billion.^[3][4]

Governors of Bank Negara

Headquarters and Branches

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.

Landmarks located near the Bank Negara building include Dataran Merdeka, St Mary's Cathedral, Kuala Lumpur City Hall building, Kuala Lumpur Lake Gardens and the Tugu Negara.

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.

Bank Negara also retains representative offices in London and New York City, and a personnel training centre in Petaling Jaya, Malaysia.

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.

Powers of the bank

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.

Exchange Control Act 1953

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.^[5]

Central Bank of Malaysia Act 1958

Provides the establishment, administration and powers of the bank.^[5] This act has been repealed with Central Bank of Malaysia Act 2009 starting on 25 November 2009.^[6]

Central Bank of Malaysia Act 2009

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.^[6]

Islamic Banking Act 1983

Provides licensing and regulations of Islamic banking in Malaysia^[5]

Banking and Financial Institutions Act 1989

Provides laws regarding licensing and regulation of banking institutions in Malaysia.^[5]

Takaful Act 1984

Provides regulation for takaful business in Malaysia^[5]

Insurance Act 1996

Provides licensing and regulations for insurance business and financial advisory business.^[5]

Money-Changing Act 1998

Gives the bank the power to license and regulate money changing business in Malaysia.^[5]

Anti-Money Laundering and Anti-Terrorism Financing Act 2001

This act is actually renamed from a previous act. The act provides powers to the bank to prevent money laundering and terrorism financing.^[5]

Development Financial Institutions Act 2002

Promotes the development of effective and efficient development financial institutions.^[5]

Payment Systems Act 2003

Regulations of payment systems.^[5]

See also

• Malaysian ringgit
• International Centre for Education in Islamic Finance
• Bank Negara Monetary Notes

References

• Gregory J. Millman, Around the World on a Trillion Dollars a Day, Bantam Press, London and New York, 1995.

External links

• (Malay) (English) Bank Negara Malaysia official site
• Islamic Banking Law