The architecture of our current monetary system is characterised by flexible exchange rate regimes, free capital flow and independent monetary policy. This global landscape has expanded the cross-border exchange of goods, services and capital. Importantly, the transition to more market-based foreign exchange rate system has accorded policymakers greater control over domestic policies, accelerated the development of financial sector, and, ultimately, boosted economic growth. Nonetheless, this international monetary system also has obvious shortcomings. In the postBretton Woods period, the frequency of banking and currency crisis has increased dramatically with large output and employment losses. At the centre of this international monetary system, policy adjustments in major economies have led to significant volatility in the financial markets. The initial hint of tapering by the Federal Reserve in May 2013 resulted in large reversal of capital flows and exchange rate over-shooting in emerging economies. Today, the complexity of managing an economy is compounded by the impact of global shifts in capital on domestic financial markets and real economic activities. Given our high degree of openness, Malaysia was not spared by these developments. For example, global concerns over monetary policy normalisation by the Federal Reserve continue to impact the ringgit. Ringgit volatility since September 2014 has exceeded levels in previous episodes of sharp adjustments such as the European Sovereign Debt Crisis and Taper Tantrum. The weak ringgit performance was further amplified by the misperception about Malaysia’s reliance on commodities and our position as a net oil exporter.

Safety nets have also been developed and enhanced, such as in the form of liquidity support to member countries via the ASEAN+3 Chiang Mai Multilateral Swap initiative which consists of a USD120 billion currency swap facility, aimed to support countries with short-term liquidity needs and to supplement existing international financial arrangements. These various developments certainly have significantly enhanced the region’s capability to holistically manage the inflows and to safeguard against the risk of sudden capital flow reversal and the instability that it would bring. Malaysian market developments Let me turn to some recent key developments in the Malaysian financial sector. The domestic financial landscape is undergoing transformation due to our continuous efforts in financial deregulation and liberalisation. Pursuant to financial liberalisation measures announced by Prime Minister Dato’ Sri Najib Tun Razak, the central bank has granted 5 commercial banking licences to foreign banks in June this year, with mega Islamic banking licences to follow suit. Foreign equity limits in investment banks, Islamic banks and insurers have been raised while more operational flexibilities have been granted. In addition, the government has announced plans to increase foreign investment limits for the government linked investment companies such as the Employee Provident Fund. Importantly, these  2  BIS Review 162/2010  liberalisation measures will further strengthen our inter-linkages with financial markets in other parts of the world.