Moroccan government proposes to boost central bank independence

RABAT Wednesday 25 February 2015

(Reuters) – Moroccan government is proposing a draft law that gives the country’s central bank much more independence and prepares it for major financial reforms and a more flexible currency exchange system.

The North African kingdom is set to allow the creation of Islamic banks and enable private firms to issue Islamic debt, after parliament approved and Islamic finance bill last November.

It also released a decree to create a sharia board of Islamic scholars to oversee the country’s fledgling Islamic finance industry.

But the move to boost the central bank’s power is also linked to demands by the International Monetary Fund for Morocco to adopt more exchange rate flexibility to make its economy more competitive and better able to absorb shocks.

“It (the draft law) bans the central bank from asking for or receiving orders from the government or from someone else” a text released on the Government General Secretariat website on Wednesday, said.

The bill will define criteria for nomination of the bank’s chief and his deputy, and will ban some members of its board from having conflicting positions in the private and public sectors.

It also gives the central bank the power to decide on the tools to use for intervention in the participative (Islamic) finance sector.

The bill adds that the central bank would be allowed to use foreign exchange reserves to protect or to defend the Moroccan dirham if a flexible exchange system was adopted.

The government plans also many other new measures for the regulator, including more control on the means of payment and decisions in case of force majeure.

Morocco may also revise the weightings of its currency basket, the head of central bank said last December, in an effort to loosen ties to the euro, which hit a two-year low this month against the dollar.

The country’s public finances have been improving as the government cut subsidies and froze public-sector hiring. The government has become more confident as oil prices fell, since Morocco remains one of the top energy importers in the region.

Foreign banks from Kuwait, Bahrain and the United Arab Emirates have expressed interest in entering the Moroccan market after the Islamic finance bill was approved.

Parliament will start discussing the central bank bill by the end of March.