Floating Dirham

Morocco will start floating the Dirham by the end of June. The information was announced by the Central bank's governor, Abdellatif Jouahri, who told Reuters on Tuesday that Morocco is working on the liberalization of its currency's exchange rate regime.

«We will begin the first phase of liberalizing the Dirham in the second quarter», Jouahri declared at the Arab Finance Ministers meeting held in Rabat. «I can’t tell how long the duration of each phase will take, it depends on the market», the head of the central bank added.

The IMF’s de facto classification of Morocco’s current exchange rate regime is referred to as “Conventional fixed peg arrangements”.

Indeed, Morocco pegs its currency within margins of ±0.3 percent or less vis-à-vis a basket of currencies: The dirham’s exchange rate is currently fixed via a peg that is 60 percent weighted to the euro and 40 percent to the dollar. (Prior to April 2015, it was fixed via a peg that was 80 percent weighted to the euro and 20 percent to the dollar).

The Moroccan government said last year that the second half of 2017 will witness the move to a flexible exchange rate regime. Mohammed Boussaid Minister of Finance who also attended the Tuesday meeting, reminded the audience that the Kingdom will start the floating of the currency on the second semester of the current year, but that «if the Central bank has decided to proceed differently, it is actually suitable due to the Dirham's high value».
According to him, delays in the implementation of the monetary reforms could result in a higher inflation, which would in term lead to harsh conditions akin to the situation in Egypt after its currency weakened dramatically last year.

Unlike Egypt who was unprepared to take the dramatic step of allowing its currency to trade freely, Morocco’s reform will be gradual allowing for a smooth transition. Indeed, Morocco’s foreign exchange reserves currently cover more than seven months of imports; and the central bank has said it expects that to rise to eight months by the end of 2017.

Moreover, the macroeconomic environment is overall very favorable to this reform thanks the country’s efforts to curb its deficits and to decrease its public debt. According to the IMF, because Morocco has the proper prerequisites for the intended reform, the scenario under which the Moroccan dirham will plummet after gradual floating can be safely discarded.

The reform implies that the exchange rate will not be used as the nominal anchor of the system anymore. Instead, Morocco will operate an inflation targeting regime. Also, the prices of other currencies vis-à-vis the Moroccan dirham will be fully determined by the market’s supply and demand; and the only interventions in the foreign exchange market will be undertaken to ensure proper liquidity.