According to recent monetary statistics from Bank Al-Maghrib (BAM), the money supply recorded an annual increase of 4.3% in May 2024, mainly due to the acceleration in the growth of fiat money, which reached 10.2% after 8.5% the previous month.
Other factors behind this development include, according to BAM, the attenuation of the decline in term accounts from 6.8% to 4.5%, the slowdown in the growth of sight deposits from 7.9% to 6.9% and the accentuation of the decline in holdings of monetary mutual fund securities from 12.5% to 18.5%.
This alarming increase in cash in circulation was also highlighted by the Wali of BAM, Abdellatif Jouahri, who stressed, during the press briefing held at the end of the 2nd quarterly meeting of the Bank’s Board for the year 2024, that the level of cash in circulation in Morocco has reached one of the highest rates in the world, or around 30% of GDP.
And to maintain that cash remains the main means of financing money laundering and terrorism, due to the lack of traceability and the anonymity it provides.
Mr. Jouahri also considered that the introduction of the future digital currency, e-dirham, will certainly contribute to curbing the circulation of cash which remains linked to an education problem as well as the presence of the informal sector in the economy.
Additional cash in the circuit: causes and effects
According to Zakaria Garti, an economic and financial analyst, this phenomenon is due to several factors, mainly the injections of liquidity in the form of subsidies and the withdrawal of deposits by citizens during the Covid-19 period.
“The volume of cash transactions has grown at an annual rate that exceeds approximately 8% on average,” Garti said in a statement to MAP.
“Cash in circulation went from around 65 billion dirhams (MMDH) to 270 MMDH in February 2020. With the pandemic, it crossed the 340 MMDH mark in a few months, increasing by an additional 70 MMDH. This increase persisted even after the Covid-19 health crisis, reaching around 400 MMDH today,” the expert said.
He notes, in this sense, that this trend has continued for several reasons, including the growth in the number of tourists using cash and transfers from Moroccans living abroad having reached a record level.
In this regard, the analyst cites a study conducted by BAM researchers which shows that cash is not only injected into the economy, but is largely hoarded, noting that approximately 70% of fiat money is non-transactional, and that the inventory of notes in circulation indicates that the 200 dirham note represents more than 70% of cash in circulation today, compared to only 47% to 50% at the beginning of the century.
Regarding the economic consequences, Mr. Garti explains that this hoarding deprives the economy of financing, which results in an increasingly significant deficit in banking liquidity.
Financial inclusion, a keystone
To combat the rise in cash in circulation, financial inclusion should be further encouraged, says Mr Garti, adding that several measures can be considered, including encouraging mobile banking.
“Morocco has had this system since 2018, but its use remains low. The number of wallets does not exceed 8 to 9 million, with transactions of around 2 billion dirhams, mainly due to the fears of several players in the informal sector regarding tax revisions,” according to the specialist.
It is therefore up to the State to reduce the cost borne by merchants to encourage mobile banking, he notes.
For his part, economist and specialist in exchange rate policy, Omar Bakkou, underlines the importance of implementing an ambitious program aimed at promoting the banking of the economy in order to reduce the volume of cash in circulation.
“It is also essential to improve corporate transparency, which is linked to governance, particularly tax governance. This includes tax policy, as well as regulatory aspects and their application,” he continues, explaining that a certain legal certainty, particularly in the tax area, is necessary to ensure a fair and equitable system.
On the cultural aspect, Mr. Bakkou emphasizes the importance of financial education, noting that initiatives such as the development of mobile banking are crucial.
While the rapid growth of cash in circulation in Morocco poses significant challenges for the national economy, efforts to promote financial inclusion and develop modern means of payment appear essential to alleviate these concerns, and strengthening financial education remains an important lever to encourage the use of alternative payment solutions.
2024-08-26 05:00:28