The authorities implemented on Monday a reform on how the dirham (MAD) is quoted on markets. It will now be able to move freely in a ±2.5% band around the official basket rate (still weighing the EUR at 60% and the USD at 40%). This long awaited reform was feasible since the import cover of foreign exchange (FX) reserves is six months and inflation was +0.4% y/y in November. More flexibility to MAD fluctuations should be positive in two ways. First, too much stability in the past did not provide the right incentive for corporates to use hedging instruments as FX risks were underestimated. As a result, hedging instruments are still underdeveloped, weighing on the diversification of trade partners. Second, the MAD will now be able to depreciate when anchor currencies such as the EUR and the USD appre¬ciate. This is a key move since the MAD gained against its trade partners’ currencies by an average of +6% since 2012 while the currencies of many competitors depreciated during the same period.