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The headquarters of Bank Negara Malaysia in Kuala Lumpur March 30, 2015. The BNM foreign exchange scandal is one of the largest in Malaysian history. — Picture by Yusof Mat IsaThe headquarters of Bank Negara Malaysia in Kuala Lumpur March 30, 2015. The BNM foreign exchange scandal is one of the largest in Malaysian history. — Picture by Yusof Mat IsaKUALA LUMPUR, June 22 — Over two decades after it first emerged, a Royal Commission of Inquiry (RCI) is finally being established to investigate the Bank Negara Malaysia (BNM) foreign exchange scandal.

The losses from BNM’s forex trading, alleged to be more than US$10 billion (RM25 billion then), was believed to have happened between 1987 and 1992 when the exchange rate had still been between RM2.3 and RM2.5 to the US dollar.

In an interview with New Straits Times in January this year, former BNM assistant governor Datuk Abdul Murad Khalid said the cause of such colossal losses was because there were no control and that “nobody knew what was happening”.

The BNM governor at the time, the late Tan Sri Jaafar Hussein, resigned following the scandal and was blamed for it, but after Murad’s revelations, Deputy Home Minister Datuk Nur Jazlan Mohamed said his father-in-law had been a scapegoat for “others”.

The scandal, among the largest in Malaysian history, took place during Tun Dr Mahathir Mohamad’s administration.

According to a Reuters report from the period, BNM in 1989 became increasingly aggressive in its foreign exchange trading, purportedly to stabilise the ringgit.

Two years later, it had become the “dominant force” in the global forex market, spending amounts between five and 10 times the norm for central banks and at daily frequencies compared to the handful of times that other central banks ventured into such transactions.

Around the same time, US billionaire George Soros was also an active currency trader and had been speculating on the British pound, similarly to BNM.

But both had different predictions: Soros bet that the pound would fall, while BNM’s traders believed it would appreciate.

In the end, Soros predicted accurately, earning a reported US$1 billion in a day and the lifelong enmity of Dr Mahathir that has only now begun to subside.

The extent of BNM’s losses have never been fully established.

At the time, Tun Daim Zainuddin — a confidante to Dr Mahathir — was finance minister (1984 — 1991) while Tan Sri Nor Mohamed Yakcop was assistant BNM governor.

Former deputy prime minister Datuk Seri Anwar Ibrahim assumed the role of finance minister in 1991, but he has since denied involvement in BNM’s decisions that led to the alleged losses.

Anwar said that he only knew about the losses in 1992 when he was abroad. In a statement this April, Anwar said the problem was first known through international news reports and the Zurich market at the end of 1991 and early 1992.

In 1993, veteran DAP leader Lim Kit Siang was the first to raise the matter in Parliament, alleging then that BNM’s forex losses was an estimated RM30 billion.

Lim went on to write a book titled The Bank Negara RM30 Billion Forex Losses Scandal on the matter and made regular calls for a RCI to investigate the case.

In February, the Cabinet formed a special taskforce to investigate Murad’s allegations, which culminated in yesterday’s announcement that an RCi will be convened to investigate. 

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