Some economic concepts
What is a bank?
Banks carry out three main functions in the economy of a country.
- They collect money deposits of their clients (individuals and companies).
- They provide their customers with the "means of payment" necessary for their commercial transactions: check books, transfers and bank cards. These supplement the currency and banknotes in circulation.
- They provide loans to some clients. These loans are used to develop their projects. The main activity of bankers is credit, which allows the financing of the economy of a country.
Bank Al-Maghrib ensures the supervision over all banks operating in Morocco and their compliance with international rules.
Supply and demand
The price of a commodity is fixed according to the supply side, those who sell goods, and the demand side, those who buy them.
If the demand for a product increases, the price of the product will also increase and, if supply exceeds demand, the price will decrease until there is a balance between the quantity produced and the price of the product.
Economists call all these phenomena "the law of supply and demand”. This law applies to all market sectors of a country’s economy. It therefore also concerns the activity of banks and Bank Al-Maghrib.
The interest rate
A bank lends money to a client: it gives it a loan and the customer borrows from the bank. Loan, credit, and borrowing designate the same operation. The client will repay the amount borrowed from the bank within a certain timeline. But he will not only repay his loan, he will also pay a certain percentage of the sum: it is the loan interest rate.
The interest rate of a loan/ borrowing/ credit is therefore its cost, also called price or rent of money. It is expressed using an annual percentage. The repayment of a loan varies according to this rate, but also the amount of the loan, the customer risk and its duration.
Through the key rate6, Bank Al-Maghrib influences the setting of interest rates charged by banks and the volume of credit demand.
When commodity prices change very little, then we speak of "price stability". All countries seek to achieve it: firstly to maintain the purchasing power of citizens, but also because price stability ensures the development of the country's activities, its steady growth.
When there is an overall, sustainable and strong price rise in a country, there is inflation. Each inhabitant can feel this, because with the same income he can acquire fewer goods. As a result, in the long run, as one buys less, companies sell less and therefore produce less. They risk lowering wages or even putting workers out of jobs. If high inflation sets in permanently, it threatens the growth of the whole country.
Thanks to its monetary policy instruments, Bank Al-Maghrib ensures the stability of prices in Morocco, thus maintaining a sound and sustainable growth of the country.
The exchange rate
Currencies used are not always the same from one country to another, but when sales or purchases of goods are made between different countries, or when traveling abroad, it is necessary to be able to exchange one’s currency for the currency of the foreign country.
For this reason, the value of the currency in relation to another currency is determined: it is called the exchange rate (one "exchanges" one currency for another). If for 100 Dirhams one can have 10 euros for example, the exchange rate is 10 to 1.
The exchange rate of a country's currency has direct consequences, notably on the country's foreign trade, transfers, investments and tourism.
Bank Al-Maghrib is responsible for fixing the exchange rate of the Dirham against the currencies of the partner countries.