Transcription of BankNegara Malaysia - insuranceinfo
1 bank Negara MalaysiaGENERALINFORMATIONBank NegaraMalaysiaA consumer education programme by:1 Introduction2 Formation of bank Negara MalaysiaObjectives of bank Negara Malaysia3 Monetary stability7 Financial stability10 Developmental role13 Payments system14 Other responsibilities of bank Negara Malaysia16 The organisation of bank Negara Malaysiacontents DisclaimerThis document is intended for your general informationonly. It does not contain exhaustive advice or informationrelating to the subject matter nor should it be used as a substitute for legal : 21 January 2003 The role of a central bank is entrusted with bank Negara MalaysiaIntroductionMost countries have established central banks as the monetary authority to oversee the financial system and the economy.
2 While central banks maydiffer in terms of structure and modus operandi, they share the commonresponsibility of maintaining monetary and financial stability. For others,its responsibility extends to the development of the financial infrastructureand participating in the overall economic development of the Malaysia , the role of the central bank is entrusted with bank role and function of bank Negara Malaysia , its operations and activitiesare described in this OF bank NEGARA MALAYSIAThe Central bank of Malaya Ordinance1958 (CBO) (Central bank of Malaya untilthe formation of Malaysia in 1963) wasenacted on 23 October 1958, while theCentral bank of Malaysia was establishedon 24 January 1959. At the same time, theBanking Ordinance, 1958, which providedfor the licensing and regulation of thebusiness of banking in the Federation ofMalaya also came into force.
3 The CBO wasrevised in 1994 and is now the CentralBank of Malaysia Act 1958 (CBA).OBJECTIVES OF bank NEGARA MALAYSIAThe objectives of bank Negara Malaysia asoutlined in the CBA are: To promote monetary stability and a soundfinancial structure To act as a banker and financial adviser tothe Government To issue currency and keep reservessafeguarding the value of the currency To influence the credit situation to theadvantage of the countryOver the years, the roles and responsibilitiesof bank Negara Malaysia have evolved and expanded. Today, bank NegaraMalaysia focuses on the three pillars ofcentral banking, namely monetary stability,financial stability and the payments addition, importance is given to thedevelopmental role of bank NegaraMalaysia, in respect to economicmanagement, institutional building andthe development of the financial to the stabilityof the value of theMalaysian currency,the ringgit3 MONETARY STABILITYAs the country's monetary authority, BankNegara Malaysia is responsible to maintainmonetary stability.
4 Monetary stability refers to the stability of the value of theMalaysian currency, the ringgit. The bestway to ensure that the value of the ringgit ispreserved is by ensuring price stability, thatis, to ensure that inflation in the countryremains low and stable. By maintainingmonetary stability through appropriatechanges in monetary policy, bank NegaraMalaysia ensures that inflation is kept lowand that the purchasing power of theringgit is not is monetary stability so important? It is important because when there ismonetary instability, prices are either rising(inflation) or falling (deflation) and this canresult in distortions and undermine thelong-term economic growth prospects ofthe inflation is too high,people will beconcerned about the purchasing power oftheir money balances.
5 This would result ina greater demand for real assets likehouses and properties, which are thoughtto be more "inflation-proof". There wouldbe less interest to invest in productivecapacity of the economy. Similarly, saverswould be less inclined to hold savings inthe financial system if they expect that thevalue of their savings would be income earners will find that they areable to buy less goods and services and willexperience a reduction in their standard ofliving. High inflation would also makeexports more expensive to foreigners andthis would reduce the competitiveness ofthe exports. Persistently high inflation wouldtherefore reduce the growth potential ofthe , when the rate of inflation isnegative,prices are falling and businessesfind their profits shrinking.
6 They mayreduce their costs by cutting expenditure4and laying off staff. Workers in turn wouldhave less money to spend and thus reducespending, resulting in a further reduction inthe demand for goods and services. Thiscreates a vicious circle of falling prices andcontracting demand resulting in a contractionin the level of overall economic there is price stability, the futurevalue of savings and the future returns oninvestments are preserved. This gives saversthe incentive to save while investors havegreater confidence to undertakeproductive activities. Increased investmentleads to an increase in the productivecapacity of the economy and increasedeconomic activity leads to new job , by maintaining monetary orprice stability, it creates a conduciveenvironment that allows the economy toexpand in a sustainable manner at close toits Negara Malaysia conducts itsmonetary policy by influencing the level ofinterest ratesthat borrowers have to pay ontheir loans and that depositors earn on theirdeposits.
7 When the economy is overheatingand the threat of inflation is high, monetarypolicy will be tightened by withdrawingfunds from the banking system and raisinginterest rates. The higher interest rates willencourage people to save more and spendless. It would also make it more expensivefor people to borrow money. This will causeconsumption and investment to slow downto a level that is more sustainable andreduce the prospect for high , when economic conditions areweak, funds will be injected into thebanking system to reduce interest lower interest rates, spending andborrowing would increase. The resultingincrease in consumption and investmentwould stimulate further economic activity,leading to higher income, employment andeconomic Negara Malaysia has a number ofmonetary instruments at its disposal toinject and withdraw funds to influence the level of interest rates in the financialsystem.
8 Examples of these instrumentswould include the purchase and sale ofWhen there ispricestabilitythe future value ofsavings and thefuture returns on investments are preserved5 bank Negara Malaysia and MalaysianGovernment papers, changes in the statutoryreserve requirements and direct lendingand borrowing in the interbank is one of the most open economiesin the world. This means that theperformance of the Malaysian economy issignificantly influenced by developmentsoutside its borders. The economicperformance of Malaysia 's trading partnerswould affect the demand for Malaysia 'sexports. By maintaining a low inflation raterelative to our trading partners, monetarypolicy contributes to making Malaysiangoods competitive Negara Malaysia also manages theforeign exchange reservesof the country to ensure that Malaysia is able to meet itsinternational obligations, therebycushioning any temporary shifts in inflowsand outflows in Malaysia 's balance ofpayments and thus promote a stable andfundamentally sound ringgit exchange exchange control policies in Malaysiaare directed at ensuring the stability of theBANK NEGARA MALAYSIAE conomic Growth/InflationBank Reserves(Liquidity)
9 Money SupplyConsumer &Business SpendingInterest RatesExchange RateHow bank Negara Malaysia s Monetary Policy Affects the Economyand InflationMonetaryOperationsWhen bank Negara Malaysia wants to STIMULATEthe economyWhen bank Negara Malaysia wants to CONSTRAINthe economy6ringgit as well as encouragingthe use of thecountry's financial resources for productivepurposes. There is generally free movementof funds into and out of the country subjectto certain prudential regulationsadministered by bank Negara Malaysiaunder the Exchange Control Act effectively manage the financial andeconomic conditions, bank NegaraMalaysia collects data and informationabout the domestic economy, the financialsystem and the international at bank Negara Malaysiaanalyse these developments to provide the assessment which becomes the basis for the policy making process.
10 The sourcesof information are diverse and includepublications of a wide range of domesticand international agencies and regulardialogues with various groups from theprivate sector. An important source ofinformation is also from the financial able to monitor closely the activitiesof the financial institutions allow BankNegara Malaysia to monitor efficiently theimpact of its policy HighInflationVery LowEconomicGrowthExceedingPotentialShort -termInterest RatesShort-termInterest RatesLoansLoans7 FINANCIAL STABILITYF inancial stability refers to an environmentwhere institutions in a financial system arestrong and can continue to meet theircontractual obligations without interruptionor without any external assistance.
