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Monetary Operations

Significant milestones in the Malaysian Foreign Exchange Market

Up to June 1967 - Currency Board as the sole currency issuing authority

Under the Currency Board system, the exchange rate of the Malayan dollar was fixed at 2s 4d. The Currency board assumed the role of converting sterling into Malayan dollars and vice versa at a small administrative charge of ⅛d.

June 1967 - Bank Negara Malaysia assumed sole power to issue currency

The Bank assumed the sole power to issue currency from the Board of Commissioners of Currency Malaya and British Borneo on 12 June 1967. On that day, the Bank commenced to issue then new Malaysian Dollar. At the same time, arrangements were made for the old Malayan currency issued by the Board to be withdrawn and presented to the Board for redemption at the rate of 2s 4d. The public was also given sufficient time to change to the new currency, with the government of Malaysia, Singapore and Brunei agreeing that the old Malayan dollar would continue to be legal tender in the respective countries until end of 1968.

Furthermore, the power of the Bank to issue currency was also a first step for an independent foreign exchange market in Malaysia. On 12 June, the Bank notified that it stood ready to sell and buy ringgit (Malaysian dollars) for sterling 2s 4-3/32d and 2s 3-29/32d. This was the first time that the Bank had openly declared a commitment to transact in the domestic currency for foreign currency at particular rates of exchange.

November 1967 - Appreciation of Malaysian dollar as sterling was devalued by 14.3%

The devaluation of the sterling occurred when the old Malayan currency continued to circulate side by side with the new Malaysian currency. As the Malayan dollar was legally fixed 2s 4d to in the Currency Agreement 1960, any devaluation of the sterling would automatically devalue the Malayan dollar to the same extent.

However, the par value of new Malaysian dollar was valued in terms of gold, and hence the devaluation of sterling meant that the new one Malaysian dollar can be exchanged at 2s 8.67d instead of 2s 4d.

March 1968 - International gold and exchange crisis

The crisis led to the closure of the London gold and foreign exchange markets on 15 March 1968, and the suspension of foreign exchange dealing from 15 to 17 March 1968.

October 1968 - Change of method in quoting exchange rates

On 1 October 1968, a new method of quoting exchange rates for the ringgit was introduced for easier understanding by the public and consistent with international practice. The new method expressed the amount of Malaysian dollars that was equivalent to 1 or 100 units of the foreign currency, and adopted the use of decimal fractions. For example, the support rates by the Bank during that period was M$1 = 32.8300d – 32.5034d was re-expressed as £1 = M$7.3100 – 7.3838

November 1968 - Suspension of foreign exchange trading due to speculation of the Deutschemark

Massive speculation in the international foreign exchange market led to the closure of several European foreign exchange markets from 20 to 22 November. The Malaysian market was also closed and resumed trading on 25 November with new support rates of £1 = M$7.29 – 7.4040.

October 1970 - Cessation of foreign exchange trading on Saturday

Commercial banks in Malaysia ceased to transact foreign exchange on Saturdays from 17 October, consistent with other countries’ practice. This is to reduce the risk of losses for open contracts transacted on Saturday, which was exacerbated due to substantial fluctuations on a day to day basis due to the recurrent crisis in the exchange markets internationally.

August to December 1971 - Suspension of convertibility of USD to gold

Due to the suspension on 15 August 1971, all major foreign exchange markets including Kuala Lumpur were closed for the whole of the following week. Trading resumed on 23 August, and the Bank widened the support rate to £1 = 7.2750 – 7.4200.

In December, following the realignment of exchange rates under the Smithsonian agreement, the parity of the Malaysian dollar remained unchanged with the sterling but was changed for the USD, from USD1= M$3.06122 to USD1 = M$2.81955 as the USD was devalued by 7.89%

June 1972 - Adoption of USD as the intervention currency

Following the dismantling of the Sterling Area by the UK government in May 1972, the Malaysian government adopted the USD as the intervention currency in place of sterling on 24 June 1972. Parity with USD was maintained at USD1 = M$2.81955 and the Bank adopted a wider margin with new support rates of USD1 = M$2.7570 and 2.8820

February 1973 - New support rates following further devaluation of USD

A second devaluation of the USD was made in 12 February at 10% versus gold price, resulting in a new parity of USD1 = M$2.5376 with support rates of USD1 = M$2.4805 – 2.5947 on 21 February.

May 1973 - Interchangeability with Singapore and Brunei dollar

On 8 May 1973, the Malaysian government announced that the Singapore dollar would no longer be interchangeable at par with the Malaysian currency. Following that, the Brunei Currency Board terminated the interchangeability of Brunei against Malaysian currency on 22 May 1973

June 1973 - Adoption of Floating Rate exchange system

On 21 June, the Malaysian dollar was allowed to float; this implied that the Bank was no longer bound to buy USD with Malaysian dollar at the floor rate of USD1 = M$2.4805. Each commercial bank was free to determine its own exchange rate in respect to any foreign currency for any amount. The Bank also continued to assist the commercial banks in order to ensure orderly conduct and smooth operation of the foreign exchange market.

Early 1974 - Standard deals changed from "value today" to "value spot"

In keeping with international practice, change of standard deals was made to “value spot” where settlements were effected on the second business day following the day of the deal.

August 1975 - Change of name of the Malaysian currency

Following the gazette of Malaysian Currency (Ringgit) Act 1975 on 28 August 1975, the name of the unit of currency in Malaysia was legally changed to "ringgit" and "sen", replacing "Malaysian dollars" and "cents".

September 1975 - Floating rate system based on basket of currencies

On 27 September, the Malaysian government decided that it was no longer desirable for the Bank to determine the rate of exchange for the ringgit in terms of the USD alone and to buy and sell the USD in order to maintain an exchange rate so determined. Instead, the value of the ringgit would be determined in terms of currencies of those countries which are significant trading partners of Malaysia.

1970’s - Proliferation of foreign exchange brokers

Having effective intermediaries in the local exchange market gained more urgency with the collapse of par value system of fixed exchange rates and widespread adoption of floating exchange rate regime. From the first brokerage centre which operated in Kuala Lumpur in 1964, more brokerage companies opened for business in the 1970s where by joint-ventures with foreign partners were common.

March 1989 - Implementation of SWIFT in the Malaysian financial system

Beginning in March 1989 when SWIFT (Society for Worldwide Interbank Financial Telecommunication) network was introduced in Malaysia, commercial banks have used SWIFT as a faster means of effecting payment as compared to telex mode. The Bank commenced using SWIFT facilities in June 1989.

December 1992 - Official symbol of ringgit denoted as "RM"

On 1 December 1992, the official symbol of the Malaysian currency was changed from M$ to RM. The abbreviation RM (or Ringgit Malaysia) would apply to both Bahasa Melayu and English versions.

September 1998 - Ringgit pegging at USD1 = RM3.80 following selective exchange controls

In the effort to protect the Malaysian economy from external vulnerabilities and restore financial stability during the Asian financial crisis, selective exchange controls were imposed on 1 September 1998.

These measures were followed by fixing of the ringgit exchange rate at USD1 = RM3.80 on the next day.

Feb 2001 - Introduction of ROMS (Ringgit Operations Monitoring System)

ROMS is a system for authorized dealers (ADs) to report FX transactions to Bank Negara Malaysia (BNM). Through ROMS, the Bank is able to enhance the monitoring of cross-border flows and the developments in the foreign exchange market.

July 2005 - Removal of ringgit peg to USD

On 21 July, the ringgit peg to the USD was replaced with a managed float system. The primary motivation for the policy shift was to better position Malaysia to respond and benefit from the structural changes occurring in the region and in the international environment.

Nov 2006 - Direct link between RENTAS and USD CHATS for settlement of US dollar

The Bank, in collaboration with Hong Kong Monetary Authority (HKMA), implemented the Payment versus Payment (PvP) infrastructure for settling interbank ringgit-US dollar trade transactions. The direct link between RENTAS in Malaysia for the settlement of ringgit and the USD CHATS system in Hong Kong for the settlement of US dollar, enable the simultaneous settlement of ringgit in Malaysia and US dollar in Hong Kong during Malaysian business hours, thus eliminating foreign exchange (FX) settlement risk for ringgit and US dollar FX transactions.

Oct 2007 - Direct link between RENTAS and USD CHATS for settlement of US dollar bonds

Leveraging on the PvP infrastructure, the Bank introduced the Delivery versus Payment (DvP) settlement service for USD bonds that are issued, deposited and traded in Malaysia.This enables the simultaneous delivery of the Malaysian-issued USD bonds that are deposited with RENTAS with its corresponding USD payment, thus eliminating the settlement risk associated with the trading of USD bonds in Malaysia.

July 2005 - Removal of ringgit peg to USD

On 21 July, the ringgit peg to the USD was replaced with a managed float system. The primary motivation for the policy shift was to better position Malaysia to respond and benefit from the structural changes occurring in the region and in the international environment.

July 2008 - Onshore MYR Fixing Rate

Established by Persatuan Pasaran Kewangan Malaysia (PPKM). It is used for derivative contracts that require USD/MYR fixing reference and also for foreign exchange orders by both domestic companies and non-resident entities.

Aug 2010 - Direct quotes between RMB and MYR on the China Foreign Exchange Trade System (CFETS)

The provision of direct quotes between renminbi and ringgit in the interbank foreign exchange market on the CFETS to promote bilateral trade between China and Malaysia, facilitate cross-border trade settlement of RMB and reduce conversion cost. The CFETS, as authorized by the People’s Bank of China, publishes the central parity of RMB against Ringgit at 9:15 a.m. on each trading day.

Mar 2012 - Renminbi Settlement Services in RENTAS

The RMB was included in the national real time gross settlement system,RENTAS, to enable a safe and efficient platform for the transfer of RMB funds and securities. The service also acts as a catalyst for the integration of payment and settlement linkages for the cross-border intermediation of both wholesale and retail funds transfer in the region. This integration is an important step towards the development of a foreign currency payment infrastructure that will reduce the cost of doing business and enable the expansion of scope and efficiency of cross border payments. Bank of China (Malaysia) Berhad was appointed as the onshore settlement institution for the Renminbi Settlement Services.

Nov 2013 - Renminbi Liquidity Facility (RLF)

The RLF was introduced on 18 November 2013 as a comprehensive framework to enhance the liquidity of the RMB in the Malaysian financial market. Through the RLF, the following avenues for licensed onshore banks to place or obtain RMB from the Bank were made available:

  1. Buying and selling outright RMB/MYR on spot and forward FX market
  2. RMB deposit placement and RMB/MYR Swap;
  3. RMB loan through repurchase agreement (Repo); and
  4. RMB deposit acceptance