Non-Convertible Currencies in North Africa: Risks and Protections for Foreign Trade

The Notion of "Currency Convertibility"

Currency convertibility can be defined as the capacity to exchange one currency for another at a specified exchange rate and in terms of a currency's usability for foreign transactions. Various degrees of convertibility can be identified, ranging from the extremes of full convertibility to complete non-convertibility. Full convertibility refers to the unrestricted exchange of a country's currency into all other currencies, without limitations on its use for any foreign transaction. This outcome is achieved when the issuing country imposes no exchange controls or restrictions against the rest of the world, nor quantitative or financial barriers to foreign transactions. Conversely, complete non-convertibility refers to the total impossibility, de facto and de jure, of exchanging a country's currency for any other currency or using it for any foreign transaction. This occurs when the issuing country establishes a system of exchange controls and restrictions and/or applies high-intensity quantitative or financial barriers that effectively halt foreign transactions. Within this spectrum, the degree of convertibility of a currency can be benchmarked against the effectiveness of exchange controls, restrictions, and quantitative or financial barriers to foreign transactions in that country.

A currency may therefore possess varying degrees of convertibility depending on the ease with which it can be converted and the extent to which it can be used for international transactions. In practice, the differing degrees of exchangeability and usability of currencies define their level of convertibility. In this context, the term "limited convertibility" refers to the unrestricted exchange and use that is in some cases provided for (or rather, permitted) within a specific geographical region for the currencies of the countries belonging to that same region.

Convertible currencies are a necessary and essential prerequisite for the development of free international trade, as they enable a multilateral system of payments and, consequently, of commercial exchange among nations.

Currencies and North Africa

Egypt: The Delicate Stability of the Egyptian Pound

North Africa is characterized by several states featuring strict systems of control over cross-border payments, resulting in the limited convertibility of their respective currencies.

Between 2022 and 2024, Egypt experienced a severe currency crisis that rendered the Egyptian pound de facto non-convertible for years, creating one of the most dramatic gaps between the official exchange rate and the parallel market rate recorded in the region. Indeed, the Egyptian economy endured a prolonged period marked by the coexistence of two distinct exchange rates for the national currency. At the beginning of 2024, the official rate stood at approximately 30.9 EGP per USD, while the parallel market rate had reached nearly 60 EGP per USD—roughly double.

The turning point came in March 2024: at a critical juncture, the Central Bank of Egypt decided to allow the Egyptian pound to float, leading to a sharp depreciation of over 60% against the US dollar. In essence, the official rate was drastically raised to align with the parallel market rate. Following the devaluation, the official exchange rate of the Egyptian pound against the dollar reached 48 EGP per USD, with the corresponding parallel market rate at 49 EGP per USD; the spread was thus reduced to a minimum, prompting observers to speak of the "end of the war against the dollar black market".

Although the intervention of the Central Bank of Egypt resolved the domestic currency crisis, the Egyptian pound remains a de facto non-convertible currency outside of Egypt: capital controls limit its international convertibility, and it is still not accepted in many countries abroad. At present, the convergence between the official and parallel market rates significantly reduces the risk of surprise devaluations in the short term. However, investors prior to 2024 suffered a real value loss exceeding 60% in USD terms. Since the risk of further devaluations cannot be entirely ruled out, those considering investing in Egyptian pounds should take the following steps prior to proceeding: monitor the agreements concluded by the Egyptian Government with the International Monetary Fund (IMF) and external financing flows (such as the agreement with the United Arab Emirates for the development of the northern area of Ras el-Hekma), which have historically preceded stabilization phases; and regularly compare official regulated bank rates with parallel market rates, as sudden "external shocks" could always impact the spread and widen the gap once again.

Morocco: The Increasingly Central Role of the Moroccan Dirham
From a monetary perspective, Morocco is the most "open" state in the North African region, although significant restrictions remain in place.

The Moroccan dirham is not a fully convertible currency, as capital controls restrict its free exchange outside Morocco, effectively classifying the dirham as a "closed" currency in practical terms.

Despite this, the dirham is playing an increasingly prominent role in the region. Reports indicate a marked increase in the use of the Moroccan currency across West African and Sahelian markets (e.g., in countries such as Mauritania, Senegal, Mali, Guinea, The Gambia, Niger, Burkina Faso, and Côte d'Ivoire). This growth represents a significant shift in a region historically anchored to the CFA franc.

Overall, Morocco provides the most stable and predictable environment in the entire region, featuring an exchange rate that shows no significant variance from the parallel market. It serves as the easiest point of entry for those wishing to operate in the Maghreb while maintaining limited currency exposure. The expansion of the dirham across much of West Africa and the Sahel presents an opportunity for businesses intending to operate in the West African region, as it allows the use of a single currency across the area instead of relying on the CFA franc and the US dollar. Nonetheless, the quantitative limits imposed on exchange transactions for different categories of operators (exporters, SMEs, individuals) must be verified on a case-by-case basis, as they affect the speed of capital repatriation.

Tunisia: The Hybrid Model

Tunisia represents a hybrid and rapidly evolving case. Formally, the country adheres to Article VIII of the International Monetary Fund regarding the convertibility of current account transactions; in practice, however, the Tunisian dinar has historically been a "closed" currency. The Tunisian dinar is therefore a non-convertible currency: it cannot be legally exchanged outside Tunisia, and taking more than small amounts out of the country is prohibited.

The new Tunisian foreign exchange code—whose final adoption procedure is currently underway, having been approved by the Council of Ministers in March 2024 and currently under review by Parliament—aims at implementing a gradual liberalization of capital accounts, progressively phasing out the current intervention of international financial institutions.

The most significant legislative turning point occurred in December 2025, when the Tunisian Parliament adopted an amendment to the 2026 Finance Act authorizing Tunisian residents to open foreign currency bank accounts—a privilege previously reserved exclusively for non-residents. This new regulation breaks with decades of highly stringent foreign exchange controls.

Overall, Tunisia represents an environment that in recent years has increasingly leaned toward a progressive liberalization of capital accounts. Looking at a medium-term horizon, this makes the country attractive to foreign investors, particularly for investments in the tech and startup sectors, which are the specific targets pursued by the 2026 Finance Act.

However, as noted, the final adoption of the foreign exchange code is still ongoing. It is therefore essential to closely monitor the upcoming legislative steps as well as the practical implementation of the aforementioned "new rule" regarding foreign currency accounts; the prerequisites for significant progress are currently positive.

Libya: A Complex Situation

Libya represents the most complex case in the entire North African region, with a currency burdened by a structural political crisis marked by two rival governments drawing upon resources from the same source: gas and oil sales.

In April 2025, the Central Bank of Libya devalued the national dinar by 13.3%, bringing the exchange rate to 1 USD = 5.5677 LYD. A 15% tax on foreign currency transactions remains in effect (down from 20%), bringing the effective rate to 1 USD = 6.4 LYD. The parallel market rate is even lower, at 1 USD = 7.2 LYD.

This is compounded by restrictions introduced in 2024 that reduced the annual foreign currency allowance for Libyan citizens by 80% (from $20,000 to $4,000 per person per year), while the corporate foreign currency quota accessible via letters of credit has effectively remained frozen since January 2024.

Consequently, Libya presents the highest combined political and currency risk among North African countries. The IMF points out that the underlying problem stems from the decision of both governments to continue spending without a unified budget, generating potential further devaluations of the Libyan national currency. Any investment in the country should therefore: include contractual clauses indexing payments to the US dollar or euro; avoid accumulating Libyan dinar liquidity beyond operational requirements; and take into account that corporate access to letters of credit is severely rationed. The energy sector, dominated by dollar-denominated agreements, remains relatively more insulated from these risks compared to other sectors.

Conclusion

In conclusion, an analysis of the North African currency landscape reveals an extremely heterogeneous region where the degree of convertibility and stability of local currencies reflect distinct economic and political contexts. Ultimately, operating successfully in the region requires moving beyond a uniform view of North Africa: companies and investors must tailor their operational and currency hedging strategies to the specific reforms, exchange control regulations, and macroeconomic conditions of each individual country.