Bank Negara Malaysia Started operations on 26 January 1959 as Bank

Negara Malaya. Governed by the Central Bank of Malaysia Act 2009.

- It provides establishment, administration and powers of the bank.

Its role is to issue currency, act as banker and adviser to the Government of Malaysia and regulate the country's financial institutions, credit system and monetary policy.

History 18th century- Malaysia became the subject to the

British Empire. They were part of the Straits Settlements wherein the British East India Company controlled the territories mainly in Southeast Asia.

Board of Commissioners of Currency 1837: Indian rupee was the sole currency of

the Straits Settlements. Were used as penal settlements for Indian

civilian and military prisoners. 'Botany Bays of India' Malacca, Dinding, Penang (also known as

Prince of Wales Island) and Singapore.- 1867: Silver dollars were again legal tenders

1903- Straits dollars, pegged at two shillings and four pence (2s 4p), introduced by the Board of Commissioners of Currency.

Private Banks were prevented from issuing notes. Since then, the continuity of the currency has been broken twice:(1) Japanese occupation 1942 – 1945 (2) 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.

PEGGED - where a currency's value is fixed against either the value of another single currency

SHILLINGS AND PENCE (PENNIES)- Old British money

12 June 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.

1985- the US dollar fell sharply causing major losses in Bank Negara's dollar reserves.- Following the "Plaza meeting" of G-5 finance

ministers in New York City. - The bank responded by starting a program of

aggressive speculative trading to make up these losses.

- Jaffar Hussein, the Bank Negara Governor at the time, referred to this strategy as "honest-to-God trading".

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 realise the influence Bank Negara had on the direction of forex market. Alan Greenspan, the Federal Reserve's chairman, later realised Bank Negara's massive speculation activities and requested the Malaysian central bank to stop it.

21 September 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 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 US$4 billion.Bank Negara lost an additional $2.2 billion in speculative trading a year later. By 1994, the bank became technically insolvent and was bailed out by the Malaysian Finance Ministry.

Pegging of the Ringgit and Reserves- In 1998, Bank Negara pegged 3.80 ringgit to

the 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 US$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 $24 billion in the one-year period between July 2004 and July 2010 (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.