I need you to complete my final project, I have already done 22 out of 35 pages, I also need you te check about plagiarism, get me new references sources and to fix the outline. The paper is a research on a economic question, about what impact will the change on Morocco's monetary policy will have on its economy.
Executive summary : In April 2, 2016 the Governor of Bank Al Maghrib (Moroccan central bank) has announced the imminent move of Morocco towards more flexibility of the Dirham. It is true that this process was prepared a few years ago, with the encouragement of the IMF. That said, this reform, which would certainly be in the long term, is a leap ahead of the Moroccan economy to enter the global trend and illustrates a real confidence in its fundamentals. In this research note, I first draw up a literature review, through which we take up the economic theory of exchange systems, their historical evolution, the influential parameters as well as the types of classification, each with its specificities. We will then analyze the influence and role of the IMF in exchange systems around the world. In the following section, we highlight the evolution of the fundamentals of the Moroccan economy in relation to its currency. Before concluding, we draw the main lessons from the experiences of liberalization of exchange rate regimes in countries with comparable economies to that of Morocco, namely Turkey, Tunisia, Egypt and Poland. The exchange system is the regulatory framework that determines the value of a currency. Through an exchange system, a Central Bank intervenes in the currency market and implements a monetary policy to influence the evolution of its exchange rate. Eiteman, D., Stonehill, A., & Moffett, M. (2013). Multinational business finance (Global ed., 13th ed., The pearson series in finance). Boston: Pearson. At the beginning of the 20th century, the fixed exchange system, based on the gold standard or on the value of the currency. This system was not suitable for the great growth of the economies at that time, due to constraints of respect for gold-parity. After the Second World War, a new international monetary system was designed and generalized by the Bretton Woods agreements. This is the standard system, or convertible against the dollar, which is itself convertible into gold. This system was abandoned in the early 1970s, subsequent to the inability of the United States to maintain, once again, gold-parity. Currently, the exchange system includes the three main categories of exchange rate regimes, which can be on a continuum, from the extreme fixation to free floating. It is: Intermediate rate Fixed exchange rate Floating rate ` · Fixed Exchange Regimes: Where the authorities fix and defend a currency exchange rate · Intermediate exchange rates: Which combine the presence of an anchor coupled with a relative flexibility of the exchange rate. The intervention of the authorities aims to draw a trajectory of evolution of the parity to a certain degree of fluctuation · Floating Exchange Rates: Where the value of a domestic currency is estimated by the supply and demand of that currency on the foreign exchange market. The intervention of the authorities only aims at influencing the evolution of the exchange rate parity, without committing to defend a given parity. In theory, the choice of the determinants of an exchange system is made from three main concepts: the "Impossible trinity", the "Fear of Float" and the "Nature of Recurrent Shocks" "Impossible trinity" Robert Mundell, Nobel Prize in Economics in 1999, developed in the mid-1960s, a theory that a country cannot simultaneously achieve the following three goals: · Fix the exchange rate and stabilize prices, by becoming immune to price volatility abroad. · Benefit from free capital mobility, ie the free movement of capital in search of a more attractive return. · Take advantage of monetary policy autonomy, and thus be able to maintain control over macroeconomic balances. “Fear of Float" Emerging countries are cautious about allowing their exchange rate to float freely. In front of such a strategic decision, a country may have several fears about the management of flexible regimes, and in the process, exchange rate fluctuations. As the experiences of Asian countries and Latin American countries have shown, this fear of floating is mainly due to the structural vulnerabilities of these countries, which I cite: Designation Vulnerabilities Currency Mismatch In a balance sheet, the value of assets and liabilities recorded in different currencies is offset by changes in the exchange rate. · Risk of transmission of external risks · Increase in the risk Assets / Liabilities. Pass-Through Effect Transmission of exchange rate fluctuations at the price level. Exchange rate volatility can magnify price increases, through imported inflation. Original sin Inability of a country to borrow from abroad with its own currency A relative increase in debt threatening the solvency of economic agents Downgrading the Rating High downgrade risk for emerging economies during shock periods. · Strong dependence of emerging economies on external debt management; · Increase in the cost of external debt. Thus, at the end of this document, I will bring all of these vulnerabilities to the case of Morocco. This exercise would allow us to assess the level of Morocco's readiness for such a decision. What approach to adopt the optimal exchange rate regime? The decision to choose the exchange rate regime does not depend on one or more economic, financial or monetary criteria, collected in a disparate way. It must be recognized that this decision should be assimilated in its context and put into perspective with the peculiarity of each country. This decision should be recorded independently of the theoretical advantages (and limits) offered by each type of exchange rate regime: from extreme fixity to pure flexibility, to intermediate regimes. Thus, this diagram presents in a summary way and without classification of a regime of exchange: Floating regimes Fixed regime Intermediary regime Nature of recurrent shocks Autonomy of monetary policy Credibility of Government Free mobility of capitals Fear of floating (Imported inflation, debt in foreign currencies) Economic opening of the country Homogeneity of objectives in the monetary field Diversity in national production Volatility of exchange rates Central bank Types of exchange rate classifications In the literature review, I identified two main approaches to classify exchange rate regimes: The "Jure" or declarative approach: This is an official classification of the IMF since 1950, which is the main source of information on exchange rate regimes. Through the “Exchange Arrangements and Exchange Restrictions” report, the IMF annually reviews the foreign exchange and international payments declarations of member countries. The "Facto" or factual approach: The de facto classification refers to a retrospective approach, which is essentially based on data and the behaviors observed, in order to establish a factual ranking of the exchange rate regimes. Should a de jure classification or a de facto classification be retained? Or is it necessary to combine the two? In fact, it usually depends on the objectives of each study, but also on the analyst's penchant. I realized that each option has strengths and limitations: · Referring to the official classification, we find that some countries, which notify their exchange policies to the IMF, do not systematically realize what they are announcing and do not always announce what they are doing. · De facto methods have been developed to overcome the inconsistencies of the “jure” classification and to offer a better characterization of exchange rate regimes. Here again, the authors of the de facto classification proceed differently from one another and lead to heterogeneous results; which calls into question the credibility of the information. In addition, the use of both de jure and de facto regimes in turn allows for the assessment of discrepancies between countries' promises and exchange practices: · Essentially, the policy intentions of the authorities can be grasped, thanks to the anticipatory approach of the de jure classification. It allows to scale the credibility of a country. · However, this retrospective nature does not always make it possible to use the de facto regimes, based on observed data, to establish projections in the future. Indeed, future statements by a government that tends to depart too often from its promises may raise doubts among observers. In this case, the previous behavior becomes a reference for anticipating future behavior. In conclusion, the choice of one classification at the expense of another is mainly a function of the objectives of each study and the perception of its author. However, a misidentification of a country's exchange rate regime leads to a decrease in its transparency with the IMF, for which the monitoring of exchange rate policies becomes complicated. In my analysis, I decided to retain the de jure classification, mainly for its official character. From there, I evaluated each type of regime (hard anchors, intermediate anchors, floating). Managed float Anchor regime with slippery bands Anchor regimes with slippery fluctuations Fixed parity regime with banded fluctuations Conventional regimes with fixed parity Currency board Regimes without national currrency Pure float Floating regimes Intermediary Pegs Hard Pegs Source: IMF Necessity of currency reserves Risk premium Free movement of capitals Autonomous monetary policy Exchange rate volatility Price fluctuations Intermediary anchors Floating Hard anchors Specificities of exchange rate regimes Source: IMF The exchange rate regime in Morocco is an intermediate anchor in its first level (conventional). The floating process is still long and certainly progressive. Where is Morocco among the various exchange rate regimes? Bank of Al-Maghrib (de Jure) is an intermediate regime of fixed parity currently to a basket of currencies, consisting of the Euro at a height of 60% and the Dollar at a height of 40%. This regime has fluctuation margins of less than +/- 0.3%. In fact, the actions carried out by the bank central agreement with the declared change regime. This does testify to the credibility of the monetary authorities. In accordance with the nomenclature of exchange rate regimes listed by the IMF (see page 10), this regime may be qualified as a conventional system of fixed parity. In the following, I will carry out a more exhaustive analysis of the evolution of the fundamentals of the Moroccan economy in relation to its currency, foreign trade, debt, investment and interest rates. The Moroccan economic model is characterized by a considerable opening towards the international market. With this in mind, measures have been taken, like the move to the Floating Dirham(Moroccan currency), to give both qualitative and quantitative impetus to foreign trade. Today, I believe that international exchanges augur a significant improvement over time. Evolution of Exports by Sector (BillionsDh) In billions (Dirhams) Pharmaceutical industry Other mining extractions Electronic Aviation Textiles and leather Phosphates and derivatives Agriculture and agrifood Automobile Souce: Moroccan exchange office Geographical structure of exchanged goods Source: Moroccan exchange office(Billions of DH) Europe Asia America Africa Imports Exports https://www.oc.gov.ma/sites/default/files/2019-07/Rapport%20BC_2018.pdf · Trade deficit continues with concentration of trade with the European Union, which crystallizes more than half of Morocco's international trade. Indeed, Morocco does not benefit from the free trade agreements signed with its main partners, such as the Union European and the United States; hence the stagnation of the average