Central bank and the financial system in Malaysia

The past decade has experienced significant evolutionary changes in central banking and in the Malaysian financial sector. The Central Bank and the financial system have been at the forefront in dealing with challenges that have emerged from both domestic and external developments. The most severe has been the Asian crisis. Throughout the period, the Bank has pursued its primary objective of maintaining monetary and financial stability so as to support a balanced and equitable growth. Pragmatic policies and continuous strengthening of the institutional infrastructure have resulted in economic stability during this decade with the Malaysian financial system having now emerged stronger and thereby, providing the strong foundation on which we enter the next millennium.

The decade also saw tremendous advancements in information technology which have revolutionised the nature and the pace of economic and financial transactions. In addition, globalisation and financial sector liberalisation have had a wide-ranging impact on financial markets. These developments created many challenges for the Central Bank, challenges in terms of its own operations as well as in the development of the financial sector.

The Asian crisis was indeed the most prominent event of the decade. In its policy response, Malaysia has adopted a different approach as compared to the other countries. While there was initial criticism on the use of selective exchange controls together with the other measures, there is now a recognition worldwide that there is no one policy prescription to address a crisis. In particular, the World Bank and more recently the IMF, have now acknowledged that the use of exchange controls has had a positive impact on the Malaysian economic recovery. The debate on whether the Malaysian approach was appropriate will feature prominently in the analysis of the Asian crisis. For Malaysia, what is important is that this policy response has created the stable conditions necessary for economic recovery.