What Happened

In a press conference on Feb. 20, Moroccan Finance Minister Mohamed Benchaaboun mentioned the possibility that the country would move forward with a plan to allow the value of its currency, the dirham, to float. Bank al-Maghrib Governor Abdellatif Jouahri reacted with a measure of caution, characterizing the next step of the process as a "second step of the first phase" of further currency liberalization, ruling out the possibility that Morocco would immediately allow a full float of the dirham.

Why It Matters

A liberalization of the currency peg will allow the dirham to weaken relative to the currency of its most important trading partner, the European Union, although it will make key Moroccan imports such as oil more expensive. With the encouragement of the International Monetary Fund, Morocco has gradually relaxed its currency controls as a means of dealing with its economic struggles. In 2017, the dirham peg, which had been tied exclusively to the euro, was altered to include the U.S. dollar, which was weighted at 40 percent. Then in 2018, the trading band for the dirham was widened to 5 percent with a maximum of daily fluctuation of 2.5 percent. But further changes were suspended in January 2019 as concerns about the global economy and trade surfaced. The plan now appears to be headed forward again, but the timetable for full liberalization may not occur until much later in the decade if it occurs at all.

Strategic Context

The Moroccan economy was hit hard by the global financial crisis a decade ago, exposing its dependence on Europe, in particular. Since then, Morocco has sought to diversify its economic trade relationships away from Europe. Having a weaker peg to the euro will benefit that aim. As its foreign policy focus shifts to sub-Saharan Africa, Morocco has hoped that liberalizing the dirham would facilitate a role as an investment and trade hub for those countries.