Bank Negara Malaysia’s (BNM) alleged involvement in foreign exchange (forex) transactions 25 years ago surfaced again following a startling revelation about it by Murad Khalid, the central bank’s former assistant governor in January 2017. The central bank’s aforesaid involvement had cost RM15 billion to the nation, during which time Dr Mahathir was the prime minister.

The losses dealt with discreetly

Although the losses had been disclosed in the financial statements of the central bank for the years 1992 and 1993, it was never brought to the public’s knowledge given that the mainstream media was totally under the control of the government back then. This is could be also due to the reason that the forex incident occurred before the advent of the social media in our country.

The disclosures were made in the last few pages of those financial reports, probably to avoid attention from the public, especially reporters who were familiar with the finance-related jargon. Only a few, especially those who directly involved in the forex transactions of the central bank and the forex market dealers, were aware of Bank Negara’s heavy involvement in the forex.

The losses that could be recovered sooner or later

According to BNM’s financial reports, the other reserves had shown a drastic fall - from RM10.1 billion in 1991 to RM743 million in 1992. In other words, BNM had suffered a severe loss of RM9.3 billion. Not only that, the reports also had revealed that there was a contingent liability of RM2.7 billion.

The then-governor, the late Jaafar Hussein and his deputy, Dr Lin See Yan, responded to the reporters about the overly dropped reserve and the contingent liability that it was just paper losses and could be recovered in the coming years.

Somehow or other, the loss of the billions had hit the nerves of the local share market players and became the hot topic among them following the official release of the 1991-financial report. The talk was that the central bank lost billions of ringgit in foreign exchange transactions.

The resignations of those who were directly responsible

The matter turned uglier when the central bank tabled its financial report for the subsequent year with another loss amounting RM5.7 billion.After that,the late Jaafar Hussein resigned as the governor, citing his failure to avoid those losses which was due to his poor judgment. Nevertheless, he claimed that his judgment was made with best intentions to protect the national interest.

Following the governor, another senior bank official who oversaw the forex operations also quit. And that was none other than our former deputy finance minister, Nor Mohamed Yakcop, who shot to fame by his notable advice to Dr Mahathir to peg the ringgit in year 1998, during the Asian Financial Crisis.

Bank Negara’s forex- interest

In the late 80s BNM was known among the forex traders and journalists who cover the financial issues for taking extreme speculative measures using ringgit in the global forex market in order to strengthen the ringgit against the other major currencies. But the so called detractors always maintained that the central bank was doing that to gain massive profits, at the expense of the rakyat’s money.

What actually happened?

In 1992, George Soros and other hedge funds bid heavily against the pound sterling - speculating that the British currency was overvalued. On the other end, BNM heavily betted that the pound sterling was very much worth its value. But unfortunately, despite the aggressive move by Bank of England (BOE) in buying billions of pound sterling, BNM’s speculation was proven wrong. And George Soros reportedly had pocketed more than US$1.0 billion.

Although the central bank remained tight-lipped, circumstantial evidence showed that the losses BNM made in 1991 and 1992, which totalled RM15 billion, strongly linked to its aggressive speculative moves in the global forex market, with an unbelievable excuse - stabilise the ringgit against the other major currencies.

Following the revelation by Murad Khalid, the cabinet set up a task force led by Sidek Hassan, the former chief secretary to the government, to unearth the truth beneath the central bank’s forex endeavours.

Having said that, the question remains: who led the central bank to forex transactions which were speculative in nature and who did really gain from it? And most importantly, were the profits via forex reported in the financial reports before the losses in the years 1991 and 1992?

Who will be called by the task force?

Other than Dr Mahathir who was the PM during that period, it is also expected that the following individuals will be called up by the task force, to assist its probe:

1. Daim Zainuddin, finance minister (1984-1991);

2. Anwar Ibrahim, finance minister (1992-1998);

3. Dr Lin Seen Yan, deputy governor (1980-1994);

4. Murad Khalid, the former assistant governor until 1999;

5. and Nor Mohamed Yakcop, who was the head of foreign exchange operations in BNM, during the incident.

Now, it’s the task force’s responsibility

It is definitely going to be very challenging for Sidek Hassan and his team to bring the culprits to the book despite having overwhelming circumstantial evidences- pointing at certain key figures behind the BNM’s forex scandal. But will the task force go to the extent of proving it and put those responsible behind the bar?! Let’s leave it to the task force, sit back and enjoy the show.