Morocco's floating dirham: safeguarding remittances and economic stability

Morocco is poised to transition to a floating exchange rate regime in 2026, a move that underscores the critical role of its diaspora in maintaining economic stability. With over five million Moroccans living abroad, remittances have become a cornerstone of the national economy, reaching MAD 117.7 billion (approximately $11.7 billion) in 2024, accounting for more than 8% of the country's GDP .

A measured approach to currency reform

Unlike countries that have been compelled to float their currencies due to economic crises, Morocco's approach is deliberate and strategic. Bank Al-Maghrib has emphasized a gradual transition, ensuring that the necessary infrastructure and policies are in place to support the shift. This includes maintaining foreign exchange reserves at robust levels, with $36 billion reported in 2024, covering nearly six months of imports .

Learning from international experiences

Morocco's cautious strategy contrasts with the experiences of countries like Egypt and Nigeria, where abrupt currency floats led to significant economic disruptions. Egypt's float in 2016, driven by dwindling foreign reserves and economic instability, resulted in inflation surging to over 20% by the end of that year. Nigeria's multiple currency devaluations between 2016 and 2023, aimed at addressing foreign exchange shortages, led to persistent inflation and a thriving black market .

Ensuring diaspora confidence

The Moroccan diaspora's confidence in the national economy is evident in the steady growth of remittances. In 2023, remittances reached a record MAD 115.3 billion, marking a 4.1% increase from the previous year. France remains the leading source, contributing 30.8% of total remittances, followed by Spain at 12.6% .

To maintain this confidence during the transition, Morocco must implement policies that protect the value of remittances. This includes offering hedging instruments to mitigate currency risk and ensuring transparent communication about the reform process. Bank Al-Maghrib has already initiated educational campaigns to prepare market participants for the implications of the reform .

Mitigating inflationary pressures

A key concern with floating a currency is the potential for inflation. However, Morocco's inflation rate remained contained at approximately 1.8% as of December 2024. To further mitigate risks, the government plans to maintain capital controls during the transition, limiting the amount of foreign currency individuals and corporations can exchange or transfer abroad. This strategy aims to prevent speculative attacks on the dirham and maintain financial stability .

Leveraging remittances for economic growth

Beyond their immediate financial impact, remittances have the potential to drive broader economic development. Currently, a significant portion of these funds is used for family support, with less than 10% directed toward productive investments. Encouraging the diaspora to invest in sectors like renewable energy, tourism, and technology could amplify the economic benefits of remittances .

Morocco's planned transition to a floating exchange rate regime represents a significant economic reform. By learning from international experiences and implementing policies that protect the interests of its diaspora, Morocco aims to ensure a smooth transition that bolsters economic stability and growth.