This was evident in several periods, the early nineties, the mid-nineties, and the outflows during 1997-1998, and in the current period following the de-leveraging by financial institutions in the advanced economies. In the early days of the Bank, policy actions were focused on the management of liquidity in the financial system through the imposition of statutory and liquidity reserve requirements,  BIS Review 12/2009  1  and through prescription of interest rates and portfolio restrictions, including ceilings on lending. Further progress and sophistication in the financial sector, the deepening of the financial markets and the growing influence of capital flows, resulted in the reliance on interest rate and other market-based instruments for monetary policy. Further, with the increased role of expectations, greater clarity in policy signals became desirable. Thus in 2004, the New Interest Rate Framework was implemented, in which the Overnight Policy Rate became the new policy rate, thereby enhancing the efficiency of the monetary transmission mechanism. The new framework has also served as a catalyst for efficient pricing of financial products and services by banking institutions. A key issue for monetary policy in an open economy like Malaysia has been in maintaining a flexible exchange rate and monetary independence in the face of increasingly large capital flows. To better manage surges in capital flows which have become more prevalent, the range of market-based instruments for monetary policy operations has been widened.

The acceleration of the nation's migration to the more efficient electronic payments continues to be an important agenda of the Central Bank. Complementing institution building has also included the support given to the development of talent in the financial services industry. The growth of the financial sector cannot be achieved without adequate attention to the development of the professional requirements of the financial services industry. In the recent two decades, a comprehensive Islamic financial system has also evolved in Malaysia, including the institutions, markets and supporting legal, regulatory and supervisory framework. The Islamic financial system now offers the full breadth and depth of Islamic financial services. Malaysia is the host to the secretariat for the Islamic Financial Services Board in Kuala Lumpur that sets the international regulatory and supervisory standards in Islamic finance. Financial market development has also been central to building a robust financial system. The Central Bank's efforts in this direction have included establishing the institutions and the infrastructure to improve market efficiency of money, capital and foreign exchange markets. The Securities Commission, the domestic rating agencies, Cagamas and the Cooperative Commission were among the initiatives initiated by the Bank. The development of a robust and vibrant foreign exchange market still remains an outstanding area of development. As a highly open economy, this market is a vital part of our financial system. The country exited from the Currency Board system in 1967 and introduced the ringgit (known as the Malaysian dollar then). The changeover was successful.