Developing Economies Optimal Exchange Rate Regime: to Float or to Peg for Morocco?

Abstract

One of the most important and recent issues for the last decade in international finance, is the choice of an optimal Exchange Rate Regime for emerging and developing countries, because it stands as the major factor in the drive for economic stability according to different studies. In this context, encouraged recently by the IMF to introduce a greater flexibility to its Exchange Rate Regime, Morocco as a small economy has already started working on the process to establish the new reform in its Exchange Rate Regime, so as pledged, it can reinforce its integration in the international financial system in order to achieve different targets of the economy. However, the transition from the actual Regime to a more flexible one is not a simple equation; that's why we intended in our paper to answer different questions related to the fundamentals of the economy through a scrupulous analysis that helps have a more clear vision on whether to float or peg the Moroccan Exchange Rate Regime. Our study is based on a quantitative comparative benchmark between Morocco and other emerging countries in order to evaluate the decision made by the Moroccan Central Bank.