Cash popularity surges in Morocco, raising Inflation and liquidity concerns

A recent report by the Central Bank  showed cash use in Morocco has hit record highs.

Between February and March 2024, the amount of currency in circulation jumped from 394.8 billion dirhams to 400 billion dirhams, a year-on-year increase of 10.2%. This surge in cash preference raises concerns about potential monetary inflation.

With more cash circulating than GDP growth, the overall demand for goods and services could rise, putting upward pressure on prices.

Experts point to several factors driving this trend. Limited digital adoption remains a key issue. Many Moroccans still rely on cash for everyday transactions, with a continued preference for ATMs over digital payment methods.

Additionally, cash usage spikes during holidays and events like Eid al-Adha and summer vacations. People withdraw money to cover purchases, especially for traditional practices like sacrificial offerings.

Financial consultants warn that the rising demand for cash could have several negative consequences. Increased cash circulation could lead to higher prices due to an imbalance between money supply and demand, a phenomenon known as inflation.

A stronger preference for cash might weaken the Moroccan dirham, making imports more expensive and impacting the exchange rate.

Banks may face liquidity shortages as more money sits outside the banking system, which could force the central bank to raise interest rates to manage inflation.

Governor Abdellatif Jouahri has announced a study to address the growing popularity of cash and promote digital alternatives. Additionally, discussions are underway with commercial banks to revisit past initiatives aimed at encouraging digital adoption.