Rabat – Morocco’s central bank, Bank al-Maghrib, hosted a workshop with the European Bank for Reconstruction and Development (EBRD) to discuss making the dirham exchange rate more flexible.
Morocco may take the next step in its gradual liberalization of the dirham in January 2020, reported Info Mediaire. Bank officials met to discuss the move at a workshop in Rabat on Wednesday, November 27.
The reform would be “an important step towards enhancing transparency,” said Abderrahim Bouazza, CEO of Bank al-Maghrib.
EBRD Vice President Alain Pilloux also viewed it positively, saying that he was “delighted to welcome Morocco to this small club of countries that have already developed risk-free, robust and transparent [exchange] rate benchmarks. This is an important step towards the development of an exchange rate market in Morocco.”
The Moroccan dirham is pegged to a “currency basket” of the euro and US dollar, weighted 60% to the euro and 40% to the US dollar.
Some of the world’s strongest currencies, such as the US dollar and euro, are traded openly in the market: If a buyer and seller agree on the exchange rate, they are free to exchange money at whatever rate they choose.
Other currencies, such as the Emirati dirham, have a “fixed exchange rate,” meaning that it is illegal to trade them for another currency unless using the established rate. Sometimes fixed rates lead to a vastly different black market rate when the central bank declares the currency’s worth to be different than sellers or buyers consider it.
Since 2018, Morocco has taken a middle of the road approach, allowing the dirham to be traded for international currencies within a certain range of exchange rates.
On January 15, 2018, the central bank began a process of liberalizing the Moroccan exchange rate so that it could be more flexible in the face of external market shocks, such as the 2008 global recession.
Before the process began, the dirham could only be traded within a range of 0.03% above and below the established exchange rate. In 2018, Morocco widened the range of the flexible exchange rate to 2.5% above and below the set rate.
The workshop’s purpose was to discuss the possible effects of further reform in the dirham’s monetary index, according to statements from EBRD and the Moroccan central bank, as quoted by Info Mediaire.
The International Monetary Fund (IMF) worked with Morocco to gradually introduce a more flexible exchange rate. In July 2019, the IMF again encouraged Morocco to “use the current window of opportunity” to expand its exchange rate flexibility.
Last month, the governor of Bank al-Maghrib, Abdellatif Jouahri, announced that Morocco would soon take the next step in currency liberalization.
“For us, the reform aims to absorb external shocks and boost Morocco’s competitiveness,” Jouahri said in a statement.