Bank Negara Malaysia (BNM; literally National Bank of Malaysia, officially Central Bank of Malaysia) is the Malaysian central bank.
Established on 26 January 1959 under the Central Bank of Malaysia Act 1958 (CBA 1958). The CBA 1958 has been repealed by the Central Bank of Malaysia Act 2009 which became effective on 25 November 2009. It is a statutory body wholly owned by the Government of Malaysia with the paid-up capital progressively increased, currently at RM100 million. The Bank reports to the Minister of Finance, Malaysia and keeps the Minister informed of matters pertaining to monetary and financial sector policies.
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, as the Central Bank, is committed to excellence in promoting monetary and financial system stability and fostering a sound and progressive financial sector, to achieve sustained economic growth for the benefit of the nation.
This will be achieved through:
- promoting a work culture which emphasizes the highest standards of professionalism and integrity, prudence, teamwork and innovation;
- developing and maintaining a committed workforce which is highly competent and proactive, sensitive to the changing needs of the industry;
- adopting a collaborative approach in everything we do;
- promoting the effective use of technology and good work practices to enhance productivity, efficiency and quality;
- adopting policies and practices to enhance the competitiveness of local financial institutions to face international competition;
- having the necessary financial resources and financial instruments to effectively manage monetary stability.
Among the major role of the Bank is the prudent conduct of monetary policy
, which has seen generally low and stable inflation for decades and thereby, preserving the purchasing power of the ringgit. The Bank is also responsible for bringing about financial system stability
and fostering a sound and progressive financial sector. There is now in place a well diversified, comprehensive and resilient financial sector, that is able to meet the increasingly sophisticated needs of consumers and businesses, and which has become a growth driver in the economy.
The Bank also plays a significant developmental role
, including development of financial system infrastructure with major emphasis placed on building the nation's efficient and secured payment systems as well as the necessary institutions (including Securities Commission, KLSE, now known as Bursa Malaysia and Credit Guarantee Corporation) which are important towards building a comprehensive, robust and resilient financial system.
The Bank actively promotes financial inclusion
, which has led to improved access to financial services for all economic sectors and segments of society, thereby supporting balanced economic growth.
Other important roles of the Bank are being a banker and adviser
to the Government, playing an active role in advising on macroeconomic policies and managing the public debt. It is also the sole authority in issuing currency as well as managing the country's international reserves.
The roles of the Bank are supported by 39 departments/units in the Bank covering seven functional areas as follows:
- Economics and Monetary Policy
Primarily provides good technical and research support on growth-related issues to enhance formulation of monetary and credit policies in promoting monetary stability and ensuring the availability of adequate credit to finance economic growth.
- Investment and Operations
Manage domestic liquidity and exchange rates to ensure that monetary policy targets are achieved as well as managing external reserves to safeguard its value and optimize its returns. It also has the responsibility of providing advice and assistance to the Government in the area of debt and fund management and contributing to domestic financial market development.
Promote financial sector stability through the progressive development of sustainable, robust and sound financial institutions and financial infrastructure, thus enabling a competitive local financial industry to be resilient against the changing future environment as well as leads initiatives to enhance access to financing. It also formulates and implements policies and strategies towards building and positioning Malaysia as a premier integrated Islamic Financial Center and enhance the financial capability of consumers.
- Payment Systems
Develop policies and strategies to promote reliable, secure and efficient clearing, settlement and payment systems in the country.
Develop, enhance and implement an effective surveillance framework to ensure safety and soundness of financial institutions and to enforce sound practices in them.
- Organisational Development
Spearhead the Bank's strategic management, organisational-performance management and programme management functions to drive its performance-improvement processes and strengthening the capacity building of the Bank. It also leads and drives human resources initiatives and other strategic activities to ensure that the overall Human Capital Management framework is implemented effectively.
The communications function has assumed increasing importance in response to the heightened demands of the various stakeholders, seeking greater transparency and disclosure.
Bank Negara Malaysia plays its role as overseer in ensuring the safety, reliability, and efficiency of payment systems infrastructure, and to safeguard the public's interest.
As an overseer, Bank Negara Malaysia formulates regulatory framework and conducts oversight on both large value and retail payment systems. The oversight activities are focus on containing systemic risks and reducing the overall risks in the payment systems in ensuring the reliability of the major payment and settlement systems.
Bank Negara Malaysia also facilitates improvements in payment services and market developments through fostering payment innovations and ensuring public confidence in the retail payment systems and the use of payment instruments. The Bank undertakes active consultation and cooperation with market players and stakeholders.
Given the importance of e-payments in enhancing economic efficiency, accelerating the migration to electronic payments is one of the nine focus areas under the Financial Sector Blueprint 2011-2020 released by the Bank in Dec 2011.
Financial instability and its effects on the economy can be very costly due to its contagion or spillover effects to other parts of the economy. Indeed, it may lead to a financial crisis with adverse consequences for the economy. Hence, it is fundamental to have a sound, stable and healthy financial system to support the efficient allocation of resources and distribution of risks across the economy.
One of the main objectives of central banks
is to promote and maintain monetary and financial stability as it contributes to a healthy economy and sustainable growth.
Bank Negara Malaysia discharges the responsibility for promoting a sound and efficient Malaysian financial system by preserving the soundness of financial institutions and the robustness of the financial infrastructure to withstand adverse economic cycles and shocks, thereby preventing inordinate disruptions to the inter mediation process and maintaining confidence in the financial system. This is primarily achieved through the regulation and supervision of the licensed financial institutions, by ensuring the continued reliability of major payment and settlement systems, and actively contributing to the development of efficient financial markets.
The Bank also remains vigilant to new emerging trends and challenges to the Malaysian financial system which could undermine financial stability by devoting significant resources towards instituting robust surveillance processes which aim to identify vulnerabilities and support pre-emptive actions to prevent systemic disturbances.
Under the Bank for International Settlements (BIS) definition, a payment system consists of instruments, banking procedures, and typically inter bank funds transfer systems that ensure and facilitate the circulation of money. In essence, it facilitates corporations, businesses and consumers to transfer funds to one another.
Payment system is defined as any system or arrangement for the transfer, clearing or settlement of funds or securities in the Central Bank of Malaysia Act 2009.
In essence, it facilitates corporations, businesses and consumers to transfer funds to one another.
Payment systems are a vital part of the financial infrastructure of a country. In Malaysia, the large value payment system, RENTAS, which is operated by the Malaysian Electronic Clearing Corporation Sdn. Bhd. (MyClear), a payment subsidiary owned by Bank Negara Malaysia, enables the transfer and settlement of high-value inter bank payments and securities. Its failure could contribute to systemic crisis and transmit financial shocks to the financial system. The efficient functioning of RENTAS allows transactions to be completed safely and in a timely manner contributing to overall economic performance.
Safe and efficient payment systems are fundamental to promote financial stability, facilitating Bank Negara Malaysia in the conduct of its monetary policy by allowing greater use of market-based instruments to achieve its objectives, while enhancing the efficiency of the financial system and the economy as a whole. Given its importance, the promotion of a secure, safe and efficient payment system is one the main pillars of the Bank.
- Currency of Malaysia:
- Malaysian ringgit
- List of Central Banks:
- Central Banks
- Official website of Bank Negara Malaysia:
- List of Licensed Banking Institutions in Malaysia:
- Ministry of Finance of Malaysia: