Moroccan Expatriates and the Floating Dirham: Risks, Confidence, and Currency Reform

Morocco World

a day ago

As Morocco approaches its planned transition to a floating exchange rate regime in 2026, the financial participation and confidence of Moroccan expatriates will play a critical role in ensuring the reform's success. With more than five million Moroccans living abroad and remittances reaching over MAD 117.7 billion (approximately $11.7 billion) in 2024, this community represents both a stabilising force and a key stakeholder in the country's economic future.
In this fourth article of the series, Oualid El Meriague speaks with financial expert Mr Badr Bouarich to explore how the dirham's floating may affect expatriate savings, remittances, and property investments. Bouarich provides critical insights into how Morocco can safeguard these contributions and foster deeper economic links with its diaspora during this pivotal shift.
A Strategic Reform with Lessons from Abroad
Transitioning from a fixed exchange rate regime to a floating one can be a complex undertaking. While some countries have managed the shift smoothly, others have struggled, if not outright failed. It is therefore essential to understand the chain of events that typically precede the decision to float a currency and to distinguish between voluntary transitions and those driven by crisis. A proper assessment must also consider both microeconomic and macroeconomic indicators.
In Morocco's case, stakeholders led by Bank Al-Maghrib have opted for a voluntary, smooth, flexible, and gradual approach to the transition. During the COVID-19 pandemic in 2020, the process was temporarily paused to avoid unnecessary risks amid uncertainty. This decision reflected Morocco's ability to pace the reform with caution and foresight, unlike other nations that have had no such luxury.
Some countries simply did not have the time or space to adjust or refine their approach. Egypt, for example, faced severe economic and institutional challenges following the Arab Spring in 2011. Political instability, security threats, especially in the Sinai, and a wave of terrorist incidents crippled tourism, which plummeted from 13 million visitors in 2010 to just 3 million in 2017. As a result, foreign currency inflows dwindled dramatically.
The country's foreign currency reserves, which stood at around $36 billion in early 2011, dropped to $18 billion within the same year. By 2016, they remained dangerously low, covering less than three months of imports, well below the safe threshold. This made the float of the Egyptian pound in 2016 less a matter of economic reform and more a response to unsustainable pressure. The decision was not voluntary but rather forced by external constraints and mounting economic distress.
Nigeria also went through several episodes of currency floating between 2016 and 2023. Initially, the move aimed to reduce pressure on foreign reserves, counter the black market, and attract foreign investment, particularly after oil revenue declines significantly reduced forex inflows. However, the policy produced mixed results. Inflation was already high, hovering around 16 percent, when the float was implemented. The government simultaneously removed fuel subsidies, which worsened the cost of living. The naira had long been overvalued at the official rate and therefore depreciated sharply once floated. Foreign exchange restrictions remained in place, leading to a semi-managed rather than truly free float. The black market persisted, and investor sentiment remained weak, deterring the very capital inflows the policy had aimed to attract.
Following a full liberalisation of the naira in 2023, however, Nigeria has begun to see more promising results. Although inflation remains elevated, the black market is shrinking, exports are gaining competitiveness, and foreign exchange reserves are showing early signs of recovery. Economic growth is also beginning to pick up again.
In contrast, Morocco's context is fundamentally different. Inflation remains contained at approximately 1.8 percent as of December 2024. The black market for foreign currency is almost non-existent despite ongoing capital controls, and reserves are stable at around MAD 375.2 billion (approximately $37 billion). Tourism reached record levels in 2024, with 17.5 million visitors and revenues exceeding MAD 105 billion. Institutions are resilient, and security concerns are being addressed swiftly and effectively. All signs suggest that Morocco is approaching this reform from a position of strength rather than necessity. This is an important distinction that should not be underestimated.
Inflation and Timing: A Lesson from Egypt
Egypt's inflationary troubles were well established even before it floated its currency. Chronic dependence on imports, rising global commodity prices, weak foreign currency inflows, persistent budget deficits, and expansionary monetary policy all contributed to an inflation rate of around 14 percent. In this fragile environment, the floating of the pound acted as an accelerant. Inflation surged to over 20 percent by the end of 2016 and approached 30 percent in 2017.
This experience demonstrates that while floating a currency is not inherently inflationary, it can magnify inflationary pressures if underlying economic fundamentals are misaligned. Floating in an environment already burdened by high inflation can lead to severe socio-economic consequences.
In Morocco's case, the floating is not driven by crisis. It is a voluntary reform rather than a reaction to external shocks or reserve depletion. As such, Morocco retains the ability to choose the right moment for implementation, an opportunity few other countries have had. In fact, we recall that Bank Al-Maghrib Governor Abdellatif Jouahri postponed the transition in 2020, citing uncertainty linked to the pandemic as justification. This strategic delay underscores Morocco's commitment to responsible economic management.
To reduce the risks associated with the float, Morocco must carefully time the move. Ideally, this would occur during a period of low inflation, stable commodity prices, and manageable external conditions. Not all risks are foreseeable, however. Should a geopolitical shock, such as an escalation between Russia and Europe, occur, it could drive global energy and food prices sharply upwards, undermining even the best-laid plans. Global developments must therefore remain closely monitored.
As discussed in earlier articles of this series, local mitigation strategies should also be reinforced. Encouraging distributors to hedge against currency volatility, while capping excessive profit margins, can help stabilize prices for essential goods and protect vulnerable consumers from sudden spikes in living costs.
Capital Controls, Black Markets, and Currency Confidence
According to official statements from Bank Al-Maghrib, Morocco's transition to a floating exchange rate will not entail the full liberalisation of capital flows. That is, limits will still apply to the amount of foreign currency individuals and corporations can legally exchange or transfer abroad. These long-standing restrictions are intended to shield the dirham from speculative attacks and to uphold financial stability during the transition.
However, as evidenced by Nigeria's experience, foreign exchange controls can create distortions if not managed carefully. In countries where the official exchange rate is perceived to be misaligned with reality, black markets often emerge as a parallel mechanism to meet unmet demand. Though informal, these markets can serve as useful indicators of the currency's perceived value. In Egypt, prior to the 2016 float, the pound was trading at a 50 percent discount on the black market, precisely the level at which the official rate settled post-float. This demonstrates how informal markets often foreshadow formal adjustments.
In Morocco's case, however, such distortions are currently minimal. Thanks to measures like raising the annual foreign exchange allowance for travel to MAD 100,000, the demand for black market transactions has largely disappeared. This suggests that the dirham's current value is broadly in line with market expectations and that public confidence in the currency remains intact.
Moroccan Expatriates: A Stabilising Force in Transition
Moroccan expatriates are a central pillar of the country's economic resilience. In 2024, remittances from the diaspora reached MAD 117.7 billion (approximately $11.7 billion), representing more than 8 percent of Morocco's GDP, which was estimated at MAD 1.43 trillion (or around $142 billion). These funds support millions of families and serve as a crucial source of foreign currency, helping Morocco maintain external balances and reserve buffers. Beyond the numbers, they also represent trust: trust that the Moroccan economy will remain stable and welcoming to those who live beyond its borders.
If the floating of the dirham is not properly timed or communicated, expatriates may become wary of holding dirham-denominated savings. In the worst-case scenario, capital flight or a shift to informal channels could erode trust in the banking system. However, with the right hedging tools, accessible foreign currency products, and a clear reform roadmap, Moroccan financial institutions can ensure that expatriates feel secure and remain active participants in the national economy.
Looking Ahead: Regional Influence Through Currency Reform
In the next and final part of this series, we will examine how the flotation of the dirham could serve not only as a catalyst for trade and investment but also as a strategic lever for Morocco to strengthen its regional economic leadership. As capital mobility, investor sentiment, and market integration evolve, we will explore how Morocco can position the dirham, and by extension its broader economic model, as a stable and credible reference point in North and West Africa.
This final analysis will provide a forward-looking view on how currency flexibility could enhance Morocco's role as a financial, commercial, and policy anchor in a more interconnected and competitive global system.