SINGAPORE (Sept 7): Over the hearing which took place at the Royal Commission of Inquiry (RCI) yesterday, Malaysia’s former second finance minister Tan Sri Nor Mohamed Yakcop, who served as adviser to Bank Negara Malaysia (BNM) from 1998 to 2000, admitted to having made the “mistake” of hedging 100% against currencies.

The hearing is part of ongoing investigations into BNM foreign exchange (forex) trading losses from 1988 to 1994, which is now estimated to stand at RM32.07 billion ($10.2 billion).

See: BNM forex scandal investigation reveals unreported RM31.5 bil in trading losses

An article published in The Edge Financial Daily today reports that Nor Mohamed admits to hedging “a large inflow of US dollars” in the late 1980s and early 1990s after receiving news of the money’s arrival two to three months earlier, in order to avoid buying Deutsche Mark at an expensive rate.

Recalling the losses to Malaysia incurred due to the Plaza Accord in 1985, which caused the yen to strengthen against the US dollar and hence led a significant portion of external borrowings to be denominated in yen, Nor Mohamed – who reported to former BNM governor Tan Sri Jaffar Hussein – said the hedging move was in support of Jaffar’s primary motive then, which was to “mitigate the downside impact of major changes in forex rates on Malaysia’s foreign currency assets and liabilities, and to preserve and conserve the value of what [BNM] had”.  

“If BNM did nothing, the inflows would have resulted in the Ringgit strengthening significantly from the BNM policy range of between 2.50 and 2.80 against the US dollar. That would have created major implications for the economy, particularly since it would have reduced the competitiveness of Malaysian export sector,” he explains.

“Admittedly we misread the turn of the market. As staff of a central bank we naturally believed that the Bank of England would win in its fight against Soros. We had confidence in our fellow central banker and bought Pound Sterling. Unfortunately, the Bank of England lost.”

While Nor Mohamed admitted to being “clearly wrong” for hedging, he emphasises that it was part of his job responsibility as a manager.

The former second finance minister claims to have accepted his fair share of the accountability for the forex losses, and resigned from BNM as a result of the incident.

“At that time, it appeared to me to be a sad end to my 25 years of service to the nation, through Bank Negara Malaysia,” he said.

See: Tan Sri Nor's full written statement at RCI hearing