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Join on Telegram Doha – The Central Bank of Morocco, Bank Al-Maghrib, aims to loosen its dirham peg to a basket of euros and US dollars by 2026, according to Governor Abdellatif Jouahri.
Bloomberg News reported that the governor made this announcement during an interview in Washington while attending the annual meetings of the International Monetary Fund and World Bank.
The central bank is “technically ready” for this move and regulators are developing a plan to implement it, Jouahri stated, adding that banks are also prepared for the transition.
This step is part of Morocco’s gradual reform process to eventually have a market-determined currency, which was halted during the pandemic.
However, the governor noted that more time and “stewardship” are needed for market participants, particularly the small firms that make up the bulk of the country’s output.
In an interview with Asharq Business, Jouahri elaborated that over 80% of companies in Morocco are very small and are not sufficiently prepared for exchange rate risks. This has led the central bank to take a cautious approach despite urging from the IMF.
Morocco began liberalizing its exchange rate in 2018 by adopting a fluctuation range of 2.5% up and down, instead of the previous 0.3%.
In 2020, this range was expanded to 5% while maintaining the dirham’s peg to a basket of 60% euros and 40% dollars. The next step involves delinking from this basket.
Jouahri acknowledged that delinking the dirham is not an easy reform as it would require adjusting the key interest rate two to three times a year.
He stated, “This is not a simple reform, because the value of the Moroccan dirham against foreign currencies will be affected, and this is a major reform that will have an impact and the central bank will bear great responsibility and put its credibility at stake.”
Despite inflation falling below target, the Moroccan central bank prefers to be cautious about its monetary policy due to ongoing uncertainty in the Middle East, Ukraine, and the upcoming US elections in November.
Read also: All You Should Know About ‘Floating Dirham’
In June, the key interest rate was cut from 3% to 2.75%, and it was kept unchanged in September.
Jouahri expressed optimism about controlling inflation, noting that the peak is now in the past and a downward trend has begun.
He expects to end the year with an annual rate between 1.1% and 1.3%, attributing this to monetary policy, government measures to ensure adequate supply of essential goods, and monthly cash support for households.
Morocco may issue bonds in the international market by the end of this year or early next year, according to Jouahri, who serves as a financial advisor to the government under the central bank’s statute.
He believes this issuance should take place at the beginning of the year, assuming global interest rates start to decline.
The kingdom does not invest heavily in gold, with its holdings remaining unchanged at 22 tons for decades.
Jouahri explained that Morocco has not followed the path of increasing its gold reserves like other countries because its foreign exchange reserves barely reach $30 billion.
Morocco has been working on draft laws to regulate central bank digital currency and cryptocurrencies for the past three years, with technical support from the World Bank and IMF.
Jouahri revealed that the draft law on cryptocurrencies is ready and awaiting government approval to start the discussion process in parliament.
The central bank is also betting on issuing a digital dirham to support financial inclusion for citizens who do not benefit from banking services and to reduce cash circulation.
Jouahri noted that Morocco may be the first country in the world in terms of cash circulation, which represents 28% of GDP and exceeded $40 billion at the end of last year.
