Moroccans Balk at Currency Float

In five decades of importing steel wires, Zahar Benmoussa’s company never worried about currency risks—until Morocco announced plans to float the dirham.

“For the first time in our history, we started to hedge” in the currency market, said Benmoussa, managing director at Casablanca-based Grillages Marocains. Across Morocco, fears of a weaker dirham triggered a rush for dollars and euros, causing a $3 billion drop in its reserves in just three months this year, Bloomberg reported.

Then in June, the government put its plans on hold again. It was at least the second time it stalled on a move supported by the International Monetary Fund and a centerpiece of Morocco’s ambitions to become North Africa’s dominant financial hub. By delaying, it risks wasting a “perfect time” in terms of its economic health to loosen controls, according to Charles Robertson, global chief economist at London-based Renaissance Capital.

“It’s fear of the unknown and pessimism on the corporates’ part,” Robertson said after a research trip to Morocco in July. There’s also the shadow cast by Egypt, he said, which saw its pound lose half of its value against the dollar after the government removed most controls in November to end a foreign-currency shortage.

While central bank Governor Abdellatif  Jouahri has repeatedly insisted that the float would be gradually introduced starting in the second half of the year, it’s now unclear when liberalization will take place. Prime Minister Saaddine El-Otmani said July 1 that the first phase will allow the currency to fluctuate within a daily range of 5%, up from 0.6% currently.

The dirham is pegged to a two-currency basket weighted 60% to the euro and 40% to the US dollar. It has fallen 4.4% against the euro this year, and touched a three-year low of 11.1831 per euro last week.

“The move to a more flexible exchange rate regime, not a float, is still in the cards but the rollout will take place at the appropriate time,” government spokesman Mustapha El Khalfi told reporters on July 6. The premier wants to investigate what volatility or depreciation would mean not only for the purchasing power of Morocco’s 34 million people, but also for companies doing business abroad, he said.

Some see opportunities from a weaker currency. Abdelhai Bessa, chief executive of textile and garments producer Somitex, said he hoped for an “orderly depreciation” of the dirham that would help Moroccan products compete with Turkish and Chinese goods.