Bank Negara Malaysia

Infobox Central bank
bank_name =
Central Bank of Malaysia
bank_name_in_local = Bank Negara Malaysia ms icon
image_1 = Central Bank of Malaysia headquarters, Kuala Lumpur.jpg
image_title_1 = The Central Bank of Malaysia headquarters in Kuala Lumpur.
image_2 =
image_title_2 =
bank_of = MYS
headquarters = Kuala Lumpur, Malaysia
president = Zeti Akhtar Aziz
leader_title = Governor
established = January 26, 1959
currency = Malaysian ringgit
currency_iso = MYR
reserves =
borrowing_rate =
deposit_rate =
website = [http://www.bnm.gov.my/ bnm.gov.my]
preceded =

"Bank Negara Malaysia" or BNM is the Malaysian central bank. Its headquarters is located in Kuala Lumpur, the capital of Malaysia, and was established on January 26, 1959 (as the Central Bank of Malaya or "Bank Negara Tanah Melayu") to issue currency, act as banker and adviser to the Government and influence the country's credit situation.

Governors

Since its inception there have been seven governors.

History

Bank Negara Malaysia was established on 26 Janury 1959 under Central Bank of Malaya Ordinance, 1958.cite news| title=BNM: About the bank| url= http://www.bnm.gov.my/index.php?ch=7&pg=1&ac=1| publisher=Bank Negara Malaysia| accessdate=2008-07-26] With it founding, it was to meet 5 objectives:-
* To issue currency, the Malaysian Ringgit and keep reserves safeguarding the value of the currency;
* To act as a banker and financial adviser to the Government;
* 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
* To influence the credit situation to the advantage of the country.

Hence, with the following objective, the bank was created to safe guard the economy of Malaysia. The bank's broader goals are promoting economic growth in Malaysia, a high level of employment, maintaining price stability and a reasonable balance in the country's international payments position, eradicating poverty and restructuring society.

Recent history

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. [http://www.asiaweek.com/asiaweek/98/0925/biz5.html] 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).

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. Bank Negara's international reserves increase further 15 days later to USD 104.3 billion or MYR 345.4 billion [ [http://biz.thestar.com.my/news/story.asp?file=/2008/1/23/business/20092385&sec=business International reserves at US$104bil] ] [ [http://www.btimes.com.my/Current_News/BTIMES/Wednesday/BizBriefs/bnrsv.xml/Article/ Bank Negara reserves at RM345.4b] ] .

Locations

Bank Negara's headquarters is located at Jalan Dato' Onn in Kuala Lumpur. A KTM Komuter station with the same name is located next door. An overhead crossing over Jalan Kuching and the Gombak River allows pedestrians access to the Bandaraya LRT station and the rest of downtown Kuala Lumpur.

Bank Negara had previously maintained branches in each of the country's . Most of them were closed in the 1990s when retail banks began taking over most of the counter services. There are still branches in Penang, Johor Bahru, Kota Kinabalu, Kuching and Kuala Terengganu, while the Shah Alam branch was converted into a currency distribution and processing centre. Bank Negara also retains representative offices in London and New York City, and a personnel training centre in Petaling Jaya, Malaysia.

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.cite news|title=BNM Administered Legislation"| url= http://www.bnm.gov.my/index.php?ch=14&pg=17&ac=481&full=1| accessdate=2008-07-28| publisher=Bank Negara Malaysia]

Central Bank of Malaysia Act 1958

Provides the establishment, administration and powers of the bank.

Islamic Banking Act 1983

Provides licensing and regulations of Islamic banking in Malaysia

Banking and Financial Institutions Act 1989

Provides laws regarding licensing and regulation of banking institutions in Malaysia.

Takaful Act 1984

Provides regulation for takaful business in Malaysia

Insurance Act 1996

Provides licensing and regulations for insurance business and financial advisory business.

Money-Changing Act 1998

Gives the bank the power to license and regulate money changing business in Malaysia.

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.

Development Financial Institutions Act 2002

Promotes the development of effective and efficient development financial institutions.

Payment Systems Act 2003

Regulations of payment systems.

References

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

See also

*Malaysian ringgit

External links

* en icon [http://www.bnm.gov.my/ Bank Negara Malaysia official site]
* [http://www.islamicbankinglaw.com Islamic Banking Law]