Economic DevelopmentResearchThe Missing Block: Bitcoin & Blockchain policy in Morocco

While Cryptocurrency adoption is thriving in Morocco, the government (and central bank) is adopting a cautious approach.

 

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Introduction

            Bank Al Maghrib’s Governor (Central Bank of Morocco) Abdellatif Jouahri, announced on the side-lines of a press conference in late June 2022, that the institution is working on a draft law regulating cryptocurrencies in the country.^[1] This has been the first signal that the country is intent on creating a legal framework for Bitcoin (hereafter referred to as BTC), the cryptocurrency industry as well as the underlying technology called ‘Blockchain’. Morocco has been late in adopting a clear stance about the industry as only in 2017 that it first published a memo to outright ban the currency^[2], and has done so again in 2021^[3]. The country is sending mixed messages as to the use of Bitcoin, cryptocurrency and blockchain technology, preferring to focus on the latter, and has been awaiting clearer international legal frameworks before stepping up to regulate the use of the asset within the Moroccan economy.

Up until this point, Morocco has been adopting a ‘wait and see’ approach to regulating the industry. This is caused by its fear of losing economic and monetary sovereignty, having nearly no control on capital flight, and its fear of decentralised finance threatening the hold of the central bank and the banking industry on the liquidity markets. Morocco is also in the process of researching the development of its own CBDC (Central Bank Digital Currency); and is studying other countries’ adoption of BTC, or their own CBDCs, to figure out where it might apply the technology for its own economy. That said, according to the website cbdctracker.org, the country is still in the research phase, which is inconclusive as to whether the country will definitely be using a CBDC (presumably the E-Dirham) in the near future.

In the meanwhile, using Bitcoin and cryptocurrency is frowned upon, is punishable by decree (quasi-law) and grapples with a population which is fervently adopting the technology and using it as a way to side-step conservative monetary policy. Moroccans have a yearly allowance of 40000 DH about 4000 $ USD- per year in travel expenses; and only 15000 DH about 1500 $ USD in online international purchases. Moroccan adopters also use it as a vehicle of both investment and speculation, given the outsized returns the market has brought to early adopters.

 

Bitcoin: A necessary background

In October 2008, at the height of the world financial crisis, caused by the mortgage backed securities in the United States, an anonymous pseudonym, going by the Japanese name of Satoshi Nakamoto, released the Bitcoin white paper entitled : “Bitcoin: A Peer-to-Peer Electronic Cash System”^[4]. The paper, which is only nine pages long, would start a worldwide movement that was initially restricted to forums within the cyberpunk and libertarian community, to become what is described as a bubble, a direct competitor to the predominance of the US dollar, and as a hedge against inflation in 2022. Moreover, institutions such as Deutsche Bank, have described Bitcoin to be nothing short of ‘digital gold’^[5].

Shortly after Bitcoin was released, the earliest adopters of the currency were mainly criminals and drug users, which was made famous by the website (now taken down) called The Silk Road.^[6] The reason the merchants and customers of the website adopted Bitcoin had to do with its ability to transact over the internet, transferring value and money, in a completely anonymous manner. All what was needed was having a cryptocurrency wallet, his or her private keys, and send them over to someone else’s wallet address (which is also referred to as the public keys). Bitcoin, essentially, no different from cash, gave the ability for people to transact anonymously through the internet without the need for a third party institution (a bank, a financial intermediary, or a broker) to approve or process the transaction. This early use case, started pushing for higher demand for the currency, and was brought to the attention of law enforcement agencies, who were trying to crack down on the illegal purchase, sales and use of drugs over the internet.

The early days- like any other technology, defined the image and perceptions people, institutions, and the media had over Bitcoin. As such, the invention went through different cycles and narratives before being now a serious contender to become a world reserve currency, just like gold- when it used to be one^[7]. The reason is being its absolute scarcity (Bitcoin is limited to 21 million coins that will be ever created – through a process called mining); its portability (Bitcoin can be accessed from anywhere, with one’s private keys); its immutability (it would necessitate 51 % of the hash power of Bitcoin i.e. the computational power used to solve mathematical problems, which if solved reward the miners in Bitcoin, to effectively corrupt the network); as well as its decentralisation (no single entity or group of miners control the network, as a public ledger, thus it is immune to censorship and control from any single entity or country). Bitcoin has all the attributes of money. It is a store of value, (having grown exponentially in 13 years, albeit it’s high volatility), a unit of account (1 Bitcoin, can be subdivided into Satoshis, these latter of which 100 million constitute a single BTC) and a medium of exchange (once a Bitcoin is transferred from one wallet to another, it is deducted publicly and the transaction can be viewed on the blockchain).

 

Morocco’s ambiguous stance

Morocco did not purposefully acknowledge the existence of Bitcoin until 2017- at the height of the 2017 bull market^[8]. At the time, the Ministry of Economy and Finance, Bank Al Maghrib and the Moroccan Authority on Capital Markets (known as AMMC) published a joint press release. They acknowledged the existence of Bitcoin (and 5000 other cryptocurrencies) as a method of payment; however citing that it remained wary in describing its use, saying that the virtual money method was not regulated within the country, and that its use prevented the protection of consumers, in case of loss of funds. Moreover, it warned that there was a missing legal framework for its use in case of theft or embezzlement. In addition, it stated that the currency had wide fluctuations in price (i.e. volatility), that it was used for illicit activity, such as money laundering or financing terrorism, It also described the currency as contrary to the current legislative framework for use of capital and currency exchange laws. ^[9]

This joint press release was a warning by the Moroccan authorities that the cryptocurrency remained a speculative, risky, and illicit asset. It was highly discouraged for Moroccans to use it, as that would amount to an illegal act, and would not protect their investment. The timing of the release came at the height of the speculative fever of 2016-2017, in which the price of bitcoin reached new all time highs (19,000 $ USD at the time),and was forming essentially a ‘speculative bubble’ before crashing down during 2018, and entering a long bear market (Bear Market being a stretched down depreciation of prices during a long period of time). During the period of 2018-2020, there was not a single effort by the country (at least publicly) to initiate a legal framework for the use of Bitcoin, or any other digital asset. As the Bitcoin price was going through a long stretch of depreciation, and it was falsely assumed that it would not become an important asset to legalise, given its bubble ‘popping’ and the disinterest by retail and institutional investors during that period. However, as is custom with Bitcoin, the market picked up again, especially during 2020, at the height of the COVID-19 crisis, for two major reasons. The first one is the actual design of bitcoin, which goes through a process of halving (reduction of 50 % of miners’ rewards every 4 years, or 210,000 blocks) leading to an appreciation of prices every time it happens, by virtue of increased scarcity, mining cost and increasing demand. The second reason is the increase in the liquidity going to the market itself, because of the massive stimulus packages (or quantitative easing- QE in financial terms) that the United States Federal Reserve Bank and the European Central Bank enacted to flush the economies with money in order to save the economies which were halted. The combination of added liquidity in the markets, the Bitcoin halving (reducing miners rewards 12.5 BTC per block to 6.25 BTC), lockdowns taking place all over the world, and the loss of trust in the US dollar (DXY Index falling), made retail and institutional investors eager to pour money into the markets as the prices were going exponentially higher. This led the price of Bitcoin to go from a low of roughly 3500 $ USD (Covid crash) to a staggering 69,000 $ USD (This made the valuation of Bitcoin at $1.291 trillion in terms of market cap)^[10]. This increase in price led Morocco to publish a second joint press release, reiterating essentially the same precautions as to the use of Bitcoin, given the growing interest in the asset by regular Moroccan retailers. The language of the press release was nearly the same, without acknowledging that the country did not take any tangible steps to regulate its use, or address the future implications of Bitcoin use in Morocco. Essentially, it turned a second blind eye, choosing what could be described as the ‘ostrich attitude’.

 

Policy and Legal implications in an uncertain environment

The only policy details regarding the industry came from two policymakers and the judiciary. The first and most important oral declarations came from Wali Bank Al Maghrib, who described Bitcoin as a purely speculative asset in 2017. In 2021, the Wali choose a milder tone, saying that it remained a speculative asset, but that the cryptocurrency industry was here to stay, and that the country is awaiting for an international legal framework, before it decides on how to regulate its use.^[11] Secondly, he mentioned that Morocco was in the research phase, having set up a large committee, composed of smaller committees to study the feasibility of a Moroccan CBDC, and the implications of Bitcoin use in the country. Alternatively, answering a question from a parliamentarian regarding the increasing use of Moroccans of cryptocurrency, the Minister of Finance Nadia Fettah Alaoui, gave a brief and concise answer on the topic. She said that her ministry was working alongside Bank Al Maghrib and other international consulting companies, to study what was an appropriate legal and regulatory framework for the use of the currency, and reiterated the press release recommendations on the dangers associated with its use and investment.^[12]

 Finally, from a legal standpoint, judges were faced with real-life cases of theft, misuse of funds and abuse of trust between two parties involving cryptocurrencies. They had to come up with appropriate legal responses and frameworks in dealing with the unregulated asset. As such, in a very detailed and extensive jurisprudential work^[13]published by the Presidency of the Public Prosecution and authored by Judge Abderrahman Lemtouni; the Judiciary defined the justice system viewed the currency through article 339 of the penal code, which bans the counterfeiting of money. Moroccan judges considered theft between individuals of BTC was a non-crime, given its originally prohibited use. That said, it also prosecuted and jailed offenders who used Bitcoin for large transactions. For example, one offender was jailed for 18 months, and fined 100,000 DH -10,000 $ USD for trespassing on article 5 of the banking law, which deems that the prosecuted was in breach of use of public funds, the use of loans or credit without proper authorization and illegal transfer of money without the intervention or authorization of the ‘Office des Changes (Foreign Exchange Bureau).^[14] Although these cases of prosecution are rare, they were the only indication as to how the justice system will rule on cases relating to cryptocurrency until the advent of a regulatory law.

Such prosecution, undefined regulatory environment and absence of protection, left Moroccans that use, mine and invest in Bitcoin and other cryptocurrencies (notably Ethereum), in a limbo; as to whether or not to carry on using cryptocurrency, and whether or not they should expect to see a proper legal framework, for safe and regulated investment, mining and trading opportunities. For users who understood the privacy that certain protocols or exchanges allowed for the transfer of funds, these prosecutions did not have any deterring effect, and carried on business as usual. However, for Moroccan individuals or even business owners (who would want Bitcoin on their balance sheets), the regulatory dissonance, the fear of prosecution and the uncertain stance of the government in the future deterred them to start creating a Moroccan made ecosystem within the country for the industry to thrive, and/or to attract blockchain developers.

 

Morocco’s likely regulatory approach

Morocco is choosing to be cautious in its approach in regard to regulating cryptocurrency awaiting larger countries such as the United States or the European Union as well as multilateral organisations such as the IMF, World Bank or the Bank of International Settlements top give them direction on how to tax it, regulate it, use it and potentially adopt it. However, it is important to note that these institutions, through their reports and public remarks remain sceptical and contrarian to BTC adoption by countries and institutions.

The only institutional sign that emerged on the issue, was Morocco’s central Bank presence in a meeting of central bankers in the country of El Salvador^[15] (which has adopted Bitcoin as legal tender in 2021)^[16], to study the implications of the legalization of Bitcoin. Essentially, from an outsider’s analyst perspective, Morocco being there is a step in the right direction, but it is still a conservative approach to what could potentially amount to more than 20 trillion dollar industry, in the coming years (surpassing gold’s market cap in that regard, sitting at 10 trillion $ USD).

From the commercial side, there has been slight indications from the banking sector that they are interested in the technology, such as Attijariwafa Bank joining the ripple network for settling payments^[17], Chaabi Bank issuing bonds on blockchain[18], or the unofficial (or yet to be proven) story that Morocco had signed a deal with an American company to mine bitcoin using wind farms in the south of Morocco (Dakhla region)^[19]. These stories, which are not inconsequential, remain unsubstantiated officially by the authorities and give even more misdirection as to what the country will choose to do in the coming months or years.

Essentially, analysts agree that legalisation of Bitcoin in Morocco is soon approaching. However, its use might be heavily curtailed, through the ‘Moroccanization of the process’ i.e. reinstating intermediaries (in all likelihood banks, and/or newly minted centralised national exchanges) and most likely the obligation of getting prior authorization before investing (most likely capped at a certain amount, similar to current foreign exchange reserve restrictions). If this turns out to be the way the country chooses to move forward, it will deter any potential investors in coming to the country to install operations, unlikely to attract blockchain developers or protocols and will result in Moroccans carrying on with their peer-to-peer transacting through blockchain without meaningfully capturing added value or taxes for government.

 

Conclusion

Bitcoin is a decentralised, immutable, incorruptible and censorship resistant network sitting on a public ledger. Blockchain technology is set to change the dynamics between citizens, government and businesses, by using smart contracts (these are being developed on Ethereum, or other Layer 1 blockchains and Oracles such Near, Elrond and ChainLink), which are contracts written in code, creating trust in dealing with governmental services (as has been widely adopted in the country of Estonia for example). Bitcoin and other digital assets are also being increasingly legalised in a number of countries as legal tender, or as a means of payment. In addition, the cryptocurrency market is full of projects serving to solve specific real world problems (Supply chains, decentralised finance through lending and providing liquidity etc), and is an exponentially growing industry. Thus, Morocco is not in a position to ignore this growing industry and could benefit from its growth. First, it could allow for Moroccans living abroad to transfer their remittances through blockchain avoiding high cost fees and financial intermediaries capturing a large chunk of those remittances. It allows for real financial freedom (self-custody of funds), and blockchain could be used in government, such as in personal identification databases, the legal system (proof of custody, as well as ownership titles in the form of NFTs^[20]), the healthcare services, education (case of Ethiopia, with the Cardano network^[21]), elections and public markets. This has the potential of solving corruption and creating public ledgers on governmental finances (especially in procurement), increasing transparency, thus trust. Secondly, Morocco with its vast renewable energy sector could benefit from developing Bitcoin mining in a sustainable green way, taking all excess energy and using it for this purpose (57 % Bitcoin mining energy comes from renewables^[22]). This would be a great addition to the country’s balance sheets, and allows it to capture some of the value of the network for its own reserves, and energy mix development.

 Essentially, Morocco has a lot to gain from this technology, but its current banking sector is looking at cryptocurrency in a way that Kodak (pioneer company of photography) looked at digital photography, without realising that, it can potentially disrupt and displace it altogether. However, it is not unreasonable to think that the banking sector is pushing for this stalling of regulation, studying its implications for their bottom line. In the meanwhile, Morocco is ranked 24th globally and first in transaction volumes within the North African countries^[23] (according to on-chain metrics) and this number will only grow Therefore, the imperative for regulating it is imminent and necessary, though regulating it in a way that stifles innovation will hurt Morocco more than will help it.

 

Endnotes

^[1]https://atalayar.com/index.php/en/content/al-maghrib-bank-announces-project-regulate-cryptocurrencies-morocco

^[2] https://www.ammc.ma/sites/default/files/communique%20monnaies%20virtuelles%20FR_0.pdf

^[3] https://www.maroc-hebdo.press.ma/usage-crypto-monnaies-maroc-avertissement

^[4] https://bitcoin.org/bitcoin.pdf

^[5] https://www.coinspeaker.com/bitcoin-ethereum-digital-gold-silver/https://www.coinspeaker.com/bitcoin-ethereum-digital-gold-silver/

^[6] https://www.coindesk.com/company/silk-road/

^[7] More on this : Look at the debasing of the US dollar (FIAT system) through the non-pegging of the U.S dollar to its equivalent in Gold, during the Richard Nixon Presidency: https://blogs.cfainstitute.org/investor/2013/03/13/president-nixon-the-man-who-sold-the-world-fiat-money/

^[8] A bull market is when there is an upward momentum in equity markets, and the economy is sound. https://www.investopedia.com/insights/digging-deeper-bull-and-bear-markets/ (For definitions)

^[9] https://www.ammc.ma/sites/default/files/communique%20monnaies%20virtuelles%20FR_0.pdf

^[10] https://99bitcoins.com/bitcoin/historical-price/all-time-high/

^[11] https://www.youtube.com/watch?v=BVth82i0FeI (Point de Presse Mars 2021, Bank Al Maghrib)

^[12]https://www.boursenews.ma/web-tv/detail/maroc/bitcoin-reaction-commune-du-ministere-des-finances-de-l-ammc-et-de-bam

^[13] https://www.pmp.ma/wp-content/uploads/liensutiles/revueversionectronique.pdf

^[14] https://medias24.com/2022/02/22/bitcoin-au-maroc-la-position-detaillee-de-la-cour-de-cassation/

^[15] https://twitter.com/nayibbukele/status/1526029996787216387 (President Nayib Bukele tweetin about the meeting of Central Banks in his country, note the major absence of northern countries in the meeting).

^[16] https://www.euronews.com/next/2021/09/07/el-salvador-makes-history-as-bitcoin-is-officially-adopted-as-a-currency-but-not-without-i

^[17] https://boursenews.ma/article/marches/cryptos-attijariwafa-bank-rejoint-le-reseau-de-paiement-transfrontalier-ripplenet

[18] https://www.moroccoworldnews.com/2022/07/350157/bcp-group-to-launch-first-bond-issue-on-blockchain-in-morocco

^[19] https://www.afrik21.africa/en/morocco-soluna-to-build-wind-farm-for-cryptocurrency-mine-in-dakhla/

^[20] Non Fungible Token : More on the topic : https://www.investopedia.com/non-fungible-tokens-nft-5115211

^[21] https://emurgo.io/cardano-strategy-africa/

^[22] https://www.inbitcoinwetrust.net/always-greener-bitcoin-industry-now-uses-the-most-renewable-energy-in-the-world-at-57-7-ba4df3a240ae

^[23] https://www.bladi.net/maroc-transactions-bitcoin,89594.html