1.

0 Introduction

The topic we choose as our group assignment is the role of Bank Negara Malaysia in the

financial market. Bank Negara Malaysia (BNM) act an important role in our country, they

control the stability of the financial and value of the ringgit. Bank Negara Malaysia (BNM) is

a statutory body that started operations on 26 January 1959. Bank Negara Malaysia (BNM) is

governed under the Central Bank of Malaysia Act 2009 (Refer to Appendix 1). They aimed at

providing a conducive environment for the sustainable growth of the Malaysian economy.

Bank Negara Malaysia (BNM) has played a significant developmental role in advancing the

financial inclusion agenda by developing the financial system infrastructure. This help all

economic sectors and segments of society have a financial service. (Bank Negara Malaysia,

2020)

Every bank plays an important role in their country to maintain their currency, to avoid their

currency drop. The currency will affect by many causes, For example, natural disaster,

political change and interest rate. As the banker and adviser to the Government, Bank Negara

Malaysia (BNM) provide advice on macroeconomic policies and the management of public

debt. Bank Negara Malaysia (BNM) is also the sole authority in issuing the national currency

and in managing the country’s international reserves. (Bank Negara Malaysia, 2020)

They also help the government to manage their source of fund, they provide temporary

advances to the government to cover any deficit in the budget revenue. This helped the

government to know their budget and won’t over budget on every project they are running.

As an overseer, Bank Negara Malaysia (BNM) 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 overalls risk in the payment systems
in ensuring the reliability of the major payment and settlement systems. (Bank Negara

Malaysia, 2020)

The Bank Negara Malaysia (BNM) has to publish an annual report of the economic and

monetary review for every year. This is because we can know our country report and Bank

Negara Malaysia (BNM) will invite professionals to help us evaluate the report. The role of

Bank Negara Malaysia (BNM) we will talk about in this assignment is how they responded to

issue currency, how they act as a banker and financial adviser to the government, how they

intervene in the foreign exchange markets to stabilize the value of the Ringgit, how they

supervise the banking system and promotes monetary stability and a sound financial structure

and how they act as an agent for the government in carrying out its monetary policies.

2.1 It is responsible to issue currency.

Malaysia Banknotes and coins are issued by BNM which is Bank Negara Malaysia. The

power to issue currency is held by Bank Negara Malaysia (BNM) which founded the Central

Bank of Malaya in January 1959, in compliance with the Malaya Regulations of 1958. Until

12 June 1967, the Malayan and British Borneo Currency Commissars distributed money.

Later, Bank Negara Malaysia (BNM) was Malaysia's main currency issuer. Until 16 January

1969, the old Malayan banknotes and the current Malaysian banknotes were in circulation.

(Bank Negara Malaysia, 2020)

In June 1967, Bank Negara Malaysia (BNM) started issuing banknotes. Such notes have a

simple style common to all denominations. On the front is the image of the first King, with

the words "Bank Negara Malaysia" added. On the front of the banknotes the words "fiat

currency" emerged, the face value and the signature of the first Malaysian, Tun Ismail bin

Mohamed Ali, who was appointed governor of Bank Negara Malaysia (BNM). The logo is
also printed on the back with a geometric design background. These banknote security

features include the tiger head watermark on the left and the warning line on the right. On 16

August 1972, with the formal usage of the new spelling method for Bahasa Malaysia, Bank

Negara Malaysia (BNM) started to use the new spelling system in banknote printing but

maintained the original version. (Refer to Appendix 2) (Bank Negara Malaysia, 2020)

On 1 September 1982, Bank Negara Malaysia (BNM) have new designs which represent

Malaysian culture as new banknotes. The basic concept is influenced by decorations,

woodblock prints and other typical handicrafts of Malaysia, as well as the flora of the region.

The head watermark of the tiger's earlier banknotes has been replaced with a picture of His

Majesty the First King. A description of the structures and significant sites in the capital is

part of the second batch of banknotes. For ease of handling and preservation, the banknotes

from this series are smaller than the previous series. (Refer to Appendix 3) (Bank Negara

Malaysia, 2020)

The RM2 banknote, the first denomination of a new Malaysian banknote designed with the

theme Vision 2020, was introduced by Bank Negara Malaysia (BNM) on 5 February 1996.

This collection of paper money launched the accelerated growth and accomplishments of the

country's economy for the first time. This banknote sequence incorporates loads of security

features. The banknotes are lined with anti-counterfeit lines in rainbow colour, written on

them with the words "BNM" and their corresponding denominations, and a three-dimensional

watermark image in them. Additionally, these banknotes have an anti-copy feature named

PEAK (Printed and Embossed Anti-copy Key), fibre thread and a novel serial number that is

written vertically in the upper left corner with black pendarfluor magnetic ink and

horizontally in red pendarfluor ink at the centre. RM10, RM50 and RM100 banknotes have

one additional feature, namely a holographic optically variable ribbon named LEAD (Long-

lasting Economical Anti-Copy Device). (Refer to Appendix 4) (Bank Negara Malaysia, 2020)
Malaysian coins were issued for the first time on 12 June 1967. They are generated in 5

denominations of the same design, namely 1 sen, 5 sen, 10 sen, 20 sen and 50 sen. On 1 May

1971 coins with a face value of 1 dollar were released. The front of each coin represents the

Parliament House, which symbolizes the Malaysian people's confidence in democracy. The

new moon stands for Islam and is the country's official religion, and the 13-pointed star

symbolizes Malaysia's 13 constituent nations. The coin, on the other side, portrays the

national flora and Bunga Raya which is hibiscus flower, with the terms "Malaysia" and

casting year. (Refer to Appendix 5) On 4 September 1989, the second group of ordinary coins

was created. Both coins have the same technological features as the first type coins, but that

the second style coins are reduced in scale and constructed of copper-zinc-tin alloy. (Refer to

Appendix 6) (Bank Negara Malaysia, 2020)

2.2 It acts as a banker and financial adviser to the government.

The role of Bank Negara Malaysia (BNM) is it acts as a banker and financial adviser to the

government. As a banker and financial adviser to the government, the Bank Negara Malaysia

(BNM) provides advice on public debt management and macroeconomics policies. (About

the Bank, n.p) Bank Negara Malaysia (BNM) has a well-managed loan program, to manage

the raise of government loans and national debt locally and internationally. Bank Negara

Malaysia (BNM) is also the only institution that manages the country’s international and the

only institution that reserves the issue of national currency.

As the changes in the decisions and policies made by the government, it will directly affect

the economy. Although the Bank Negara Malaysia (BNM) does not provide any funds, Bank

Negara Malaysia (BNM) will regularly advise the government on the internal and external

debts. (Alvin Kwan, n.p) Bank Negara Malaysia (BNM) actively participates in the cash flow
committee meeting to discuss the final details of Government securities issuances that chaired

by the Ministry of Finance. Furthermore, Bank Negara Malaysia (BNM) is responsible for

the business, the issuances, the register, the redemption, and the settlement of the government

securities that through by the settlement platform and the automatic trading.

In 1985, the Bank Negara Malaysia Ordinance allows the Bank Negara Malaysia (BNM) to

provide temporary advances to the government to make up for any deficiency in budget

revenue. However, the legal restriction to the duration and amount of loans that Bank Negara

Malaysia (BNM) can provide to the government. (Central Bank, n.p) As a result, the Bank

Negara Malaysia (BNM) only holds very little MGS. Since 2005, Bank Negara Malaysia

(BNM) has been allowed to purchase the MGS based on market prices from primary markets

and secondary markets. Bank Negara Malaysia (BNM) open the market operation with the

purchased securities. (Bond Regulatory Framework, 2012)

The participant of Bank Negara Malaysia (BNM) in the major auctions is based on the

weighted average price of the auction and cannot exceed 10% of the issue size. Similarly, the

amount of purchase in the secondary markets is also cannot exceed 10% of the outstanding

issues amount. This is because the Bank Negara Malaysia (BNM) need to ensure that these

purchases do not misrepresent or excessive influence on market prices. As of June 2006, the

total outstanding amount of MGS that held by Bank Negara Malaysia (BNM) is less than 1%.

(Bond Regulatory Framework, 2012)

2.3 It intervenes in the foreign exchange markets to stabilize the value of the Ringgit.
One of the roles of Bank Negara Malaysia (BNM) is intervening in the foreign exchange

markets to stabilize the value of the Ringgit Malaysia (RM). There are many ways to

intervenes in the foreign exchange market to stabilize the value of Ringgit.

intervene in the foreign exchange market and stabilize the value of Ringgit. As an example,

continuing efforts to enhance resilience is a way of improving the management of foreign

exchange volatility. For monitoring purpose, establish the open and close relationship with

market participants is a measure of capital flow forecasting market mood changes and

strength of the important tools in addition to the evaluation of early warning indicators with

market participants to contact, the central bank also by providing near real-time information

monitoring system to track the cross-border flow of the system captures the detailed

information of the local financial market flows include the nature of the trading tools

involved and the trade this for the central bank provides the management of capital flows the

required information At the regional level, through the network of trading rooms,

teleconferences and meetings on financial markets, regular exchange of information by the

ECB central bank benefits monitoring efforts. Regular teleconferences allow EMEAP

members to share sensitive information, including insights on capital flows in each market.

(Norzila Abdul Aziz, pg. 215)

Besides that, the ways to improve the management of foreign exchange volatility is

continuing efforts to enhance resilience. Capital flows into emerging markets economics

(EMEs) are probably to increase in the future, and given the balance of pull and push factors,

net capital inflows are most likely in the medium to long term. (Norzila Abdul Aziz, pg. 219)

Secondly, using the global solution to settle down the global problems can intervene in the

foreign exchange market to stabilize the value of Ringgit. For examples, fixing the root of the

problems with suitable solutions. Although Malaysia can manage the effects of volatile

capital flows, the central Bank recognize that to solve this problem at the root of capital flow

fluctuation of the driving factors is vital for sustainable solutions about the document of the

central bank intervention in foreign exchange shows that the discussion of this area is usually
around the short-term solution, such as the efficiency and effectiveness of the intervention

motivation intervention and intervention management, however, the cost of repair at the root

of the problem is not simple any solution not only requires global cooperation efforts, also

need to implement and carry out the restructuring of the roadmap agreed strong will and

commitment Given the nature of capital flows, the best solution naturally requires the efforts

of both providers and recipients of capital flows. (Norzila Abdul Aziz, pg. 222)

2.4 It supervises the banking system and promotes monetary stability and o sound

financial structure.

The role of Bank Negara Malaysia (BNM) is it supervises the banking system and promotes

monetary stability and a sound financial structure. The aimed of this role is to let Malaysia

economy continue to grow. Bank Negara Malaysia (BNM) is the central bank so they need to

come up with some policies for monetary or financial stability. This is to support the

realization of the real economy by various financial sectors such as developing a sound,

resilient, progressive and so on. It also plays an important role in the foreign market. BNM

has also played a big role in boosting the financial sector. This is to let all the departments to

get help. Bank Negara Malaysia (BNM) controls the payment systems infrastructure and

makes sure the efficiency and security of the financial systems. Besides, Bank Negara

Malaysia (BNM) also introduced a system for Banks so that other banks don't make mistakes.

Can be said that Bank Negara Malaysia (BNM) is a model for other banks and some very

important decisions need to be made by BNM or they will affect the country. Bank Negara

Malaysia (BNM) is responsible for ensuring that the supply of money and credit is flexible

enough to meet demand in the domestic economy without putting pressure on resources.

BNM is the authority that issues its currency and manages the country's international
reserves. This role can influence the level of inflation. Inflation means a general price rises

among the goods and services. (H. Plecher, 2019)

When inflation rises, it also makes people less opportunity to shop because of the higher

Inflation, the lower the purchasing power. Inflation can benefit and can be negative to

someone. For example, Bank Negara Malaysia (BNM) has a comparing inflation rate

between1984-2024. The inflation rate for 2020 is 2.08%. The inflation rate for the following

years will sustain to increase while for the past years has been erratic. The higher inflation

rate in 2006. Besides, this role also is to promote the saving account. This is aimed to let the

money be more safely because if keeping money in the saving account no matter what will

happen in the house it also can keep it safely such as houses born and so on. (Financial

Dictionary, 2015)

Since 1 February 2005, all the banks and finance firm provide a basic saving account (BSA)

and basic current account (BCA) to Malaysian individuals and residents. People with BSA

and BCA accounts can enjoy cheque and cash deposit, account enquiries, withdrawals, fund

transfer within the same banking institution, bill payment facility as provided by the banking

institutions and Interbank-GIRO2. This is more safety and more convenient for people. Thus,

the role can sustain economic growth. The aim is to let the country become more developed.

If our country's economy keeps developing, our country will be better. For example, if the

economy is developed, our country will become very advanced. This is because when our

country has enough economy, our country can help people live a better life. Besides, when

the country's economy continues to develop and get better and better, there will be many

countries would like to cooperate with our country because our country has enough economy.

Bank Negara Malaysia (BNM) has the responsibility to sustain the economic growth because

of the lack of stable economic development will have a great impact on the country. (Bank

Negara Malaysia, 2005)

The role of Bank Negara Malaysia (BNM) is it acts as an agent for the government in

carrying out its monetary policies. The new of this year, Monetary Policy Committee of Bank

Negara Malaysia (BNM) was announced a new monetary policy which is they decided to

reduce the Overnight Policy Rate (OPR) to 2.50% on 3 March 2020. Furthermore, the

maximum and minimum changing rates of OPR were reduced to 2.75% and 2.25%. The

reason for charging OPR is the impact of COVID-19. Furthermore, COVID-19 also reduced

the number of shareholders in the financial market, it is mean the investor has no confidence

in the financial market. The impact of the reduction of investor has a tighter financial

condition and a resurgence in the financial market. In the monetary statement, it showed the

Malaysian economy was increased by 4.3% in the first quarter of 2019, those increased

because of the development of the tourism-related and manufacturing sector. After that, the

Malaysian economy will decrease in the first quarter of 2020 based on the COVID-19

outbreaks. Next, the agriculture sector also will keep persisting in the first quarter and

household spending is expected will go to a slower pace. Although Gross Domestic Product

(GDP) is expected to improve in the second half of the year, those economists think there is

downside risk in the Malaysian economy. Therefore, the purpose of reducing OPR is for

people and country have a more flexible accommodative monetary environment to support

the improvement of the economy. Furthermore, the monetary policy is used to solve and

lighten the problem of COVID-19 outbreaks. Then, reduction of OPR is a type of monetary

policy. (Bank Negara Malaysia, 2020)

Second, reduction of OPR is not only one time, but they also have more than 10 times to

increase or decrease OPR. For example, before the movement control order occurs, the MPC
of Bank Negara Malaysia has to decrease the OPR to 2.75% on 22 January 2020. In this time,

headline inflation averaged at 0.7% in 2019. Headline inflation is predicted to be higher on

average by 2020 but still moderate. The pace of headline inflation would rely on changes in

world oil and energy markets and the pacing of raising domestic retail fuel price ceilings. It is

predicted that core inflation should stay relatively steady, indicating the sustained

acceleration of economic growth and the absence of significant market pressures. The

purpose of adjusted on OPR is a pre-emptive measure to secure the improving growth

trajectory amid price stability. At this current OPR point, the MPC sees the monetary policy

stance as necessary in maintaining economic growth and market stability. (Bank Negara

Malaysia, 2020)