Dirham: The calm path toward a floating regime

International experiences show that between 5 and 15 years are needed for a country to voluntarily move from a fixed exchange rate regime to a floating one, a configuration in which the exchange rate of the currency is determined by the market (with limited intervention from the monetary authority).

More than 7 years ago (in 2018), Morocco initiated, in a sovereign manner and through a gradual process, the reform of its fixed exchange rate regime, now with a flexible anchor. This is done within horizontal bands where the parity of the dirham is determined in relation to a central rate.

The latter actually reflects the value of the currencies composing the reference basket (60% euro and 40% dollar). Currently, the exchange rate on the spot market fluctuates daily within a band of +/-5% compared to the central rate.

Beyond this important reminder, the reasons supporting greater flexibility of the dirham and a floating exchange rate regime are numerous. For example, it limits pressure on foreign exchange reserves through progressive adjustment by exchange rates rather than by volumes (which is the case in a fixed regime configuration).

Other advantages include strengthening the Moroccan economy’s ability to adapt to external shocks and supporting national competitiveness.

Nearly 8 years after the first steps of implementing the exchange rate reform — with the widening of the fluctuation band to +/-2.5% in 2018 — which has unfolded under good conditions despite the Covid-19 parenthesis, the assessment is rather positive, as the deepening of the foreign exchange market is strengthening and liquidity is strong.

As evidence: the substantial increase in the average daily volume of interbank transactions, which rose from 100 million MAD in 2017 (before the reform) to more than 1.6 billion MAD in 2025. Another parameter supporting the encouraging assessment: a growing contribution of supply and demand forces in determining the dirham’s exchange rate.

Large companies inclined to hedge
Field experience shows an increase in the use of hedging instruments against exchange rate risks by major economic operators. These are mainly large importing companies operating in the energy, agri-food, and trade sectors.

Moreover, efforts to reform the Kingdom’s exchange policy have helped maintain foreign currency reserves at a comfortable level. These reached more than 421 billion MAD in October 2025, representing more than five and a half months of imports.

Furthermore, according to official projections, the level of the country’s foreign currency reserves should stand around 126% of the ARA (Assessing Reserves Adequacy), within the adequacy interval recommended by the International Monetary Fund (between 100 and 150%).

In the same vein, the very limited number of BAM’s interventions in the foreign exchange market strongly confirms the good conditions under which the reforms continue. Backed by figures: since 2018, BAM has intervened only twice in the interbank foreign exchange market. And yet, the value of the dirham has remained within the fluctuation band without major interventions.

Specifically, the central bank intervened in January 2018 (at the beginning of the reform) and in 2021, respectively for 294 million dollars and 1.65 billion dollars in the second half of 2021. Note that during this period, the dirham traded at the lower limit of the fluctuation band due to excess liquidity in the market requiring central bank intervention.

Ultimately, it is important to keep in mind that since the reform of the exchange rate regime came into effect, the evolution of the dirham’s value has resulted from two main factors: the euro/dollar trend on the international market (basket effect) and liquidity conditions in the interbank foreign exchange market (market effect).

Three essential prerequisites
There is no doubt that moving toward the ultimate stage of the dirham flexibility reform, involving among other things the abandonment of the currency basket anchor (euro-dollar) and the establishment of a floating exchange rate regime, depends on several crucial prerequisites.

First is the lasting consolidation of macroeconomic balances. Regarding this aspect, the country’s economic outlook is rather positive, given the central bank’s forecasts, which anticipate an acceleration of economic growth to 4.6% in 2025 and stabilization at 4.4% in 2026.

Foreign exchange reserves are expected to continue strengthening, reaching 418 billion MAD by the end of 2025 and 434.5 billion MAD by the end of 2026, levels equivalent to five and a half months of imports. Furthermore, Bank Al-Maghrib expects a budget deficit (excluding state share sales) stable at 3.9% of GDP in 2025 and narrowing to 3.4% in 2026.

Clearly, one immediate consequence of controlling the budget deficit is the evolution of public debt, which is the accumulation of deficits year after year.

The second key prerequisite for advancing in the reform — and which raises many challenges — is the adequate preparation of economic operators, particularly SMEs. Indeed, field data show that most SMEs are unaware of the existence of hedging products against exchange rate risks for their import or export operations.

For now, only large groups with the means to access trading rooms tend to subscribe to products that substantially reduce their exposure to currency risk. Note that around 10% of companies use hedging products against foreign exchange risks. This ratio falls to 2% among SMEs.

The democratization of hedging products among SMEs will require, among other things, awareness-raising and facilitation of access for this category of companies, which represents nearly 95% of the economic fabric (affordable pricing, local banking networks for distribution, etc.).

Finally, according to experts, an appropriate nominal anchor replacing the fixed exchange rate regime through the adoption of inflation targeting will be necessary for the next stages of the exchange rate reform.

Regarding this point, BAM’s timetable is known. 2026 is a pivotal year, as it will be a full-scale test period for inflation targeting before its adoption planned for 2027, if the test proves conclusive.

Note that the monetary policy framework for inflation targeting requires from the central bank, among other things, the announcement of an inflation target and prioritizing its achievement over all other monetary policy objectives, as well as the use of a rigorous framework to forecast the inflation rate.

Derivatives market: Favourable development for the reform
Another key factor for the success of the reform is the deepening of the derivatives market enabling operators to hedge against exchange rate risk.

Indeed, on September 20, the Casablanca Stock Exchange successfully conducted a full-scale test of its future derivatives market, with the aim of ensuring the robustness of its infrastructures. This successful test mobilized all financial market players (brokerage firms, trading floors, clearing members, Maroclear, and data distributors).

The objective of the derivatives market is twofold: to provide investors with a modern tool for hedging against volatility (rates, currencies, commodities, equities) and to strengthen the depth and transparency of the capital market.

Along the same lines, note that in February 2025, BAM launched two new segments in the interbank derivatives market (the interbank foreign exchange swap market and the overnight indexed swap market — OIS — indexed to MONIA).