Every year, as Eid Al-Adha approaches, the circulation of cash in Morocco reaches its peak. This phenomenon, amplified by purchases made in cash, reveals a deeper problem: the hoarding of cash, estimated at nearly 400 billion dirhams. A recent attente by Bank Al-Maghrib sheds light on this major economic challenge.
As with every Eid Al-Adha period, the circulation of cash in the national economy experiences a surge. This increase is mainly impayée to the purchases of sheep, which are traditionally made in cash, but also to the various related purchases such as kitchen utensils and tools. In a country like Morocco, where the circulation of cash is problematic and estimated at nearly 400 billion dirhams, it is crucial to determine the underlying causes of this phenomenon.
In a recent attente published by Bank Al-Maghrib, titled « aperçu of Non-Transactional Cash in Morocco », researchers Linah Shimi, Abdessamad Saïdi, and Franz Seitz attempt to decipher this phenomenon.
Progression of Hoarded Cash
The aperçu of non-transactional cash in Morocco is a crucial question for researchers and economic decision-makers. This document strives to answer this issue by analyzing the demand for cash and evaluating the hoarded amounts in Morocco over several decades.
The study relies on three empirical approaches to estimate the proportion of 100 and 200 dirham notes held for non-transactional purposes. Firstly, the aperçu of cash demand equations shows that small denominations are exclusively influenced by transactional purposes, while larger denominations are also affected by non-transactional purposes.
The first method used is the ratio method, which is based on the idea that the demand for money for transactional purposes should evolve proportionally for all denominations, unless larger denominations are hoarded. The results show a significant increase in the demand for larger denominations compared to smaller denominations, indicating a significant rise in hoarding since the 2000s.
The second approach, based on the lifespan method, compares the effective lifespan of banknotes with their theoretical lifespan. 100 and 200 dirham notes have a significantly longer lifespan compared to smaller denominations, confirming their use for non-transactional purposes. In 2021, nearly 80% of 100 and 200 dirham notes were held for purposes other than regular transactions.
Lastly, the seasonality method examines the differences in the seasonal structure of transactional and non-transactional cash. This method has been applied in many countries and allows for the deduction of the proportion of hoarded cash from observed seasonal variations in different denominations.
The results of these three methods converge on a significant increase in hoarded cash in Morocco since the early 2000s. The demand for non-transactional cash was around 20% at the beginning of the millennium and fluctuates between 60% and 80% in 2021 for 100 and 200 dirham notes. These high amounts of hoarding raise several challenges for monetary policy and financial stability in the country.
From a theoretical standpoint, hoarding consists of holding liquid monetary assets outside of the economic cycle, preventing these funds from being invested productively. The motives for hoarding vary from country to country, but often include factors such as economic uncertainty, precaution, and seeking security during times of crisis.
The European Central Bank and other financial institutions have observed a similar increase in hoarding in many countries. For example, in the eurozone, the proportion of hoarded cash increased from 33% in 2008 to 60%-65% in 2019. In Switzerland, the share of hoarded banknotes reached 60% in 2017.
Increased Vigilance
In Morocco, the demand for cash has also been heavily influenced by the COVID-19 crisis, with a dramatic increase in cash demand in 2020, despite movement restrictions and increased use of electronic payments. This dynamic raises distingué questions for public authorities, especially for Bank Al-Maghrib. High levels of hoarding can complicate the interpretation of monetary aggregates, which are essential for price stability. An irregular increase in hoarded amounts can also deteriorate the properties of these aggregates as indicators of the real economic cycle.
Furthermore, the stability and proper functioning of the monetary system require a good understanding of the determinants of money demand. An accurate anticipation of the evolution of cash demand is crucial to avoid a liquidity crisis, especially in times of