BoT Restricts Dollar Use to Strengthen Shilling

The Bank of Tanzania (BoT) has implemented new measures to restrict the use of US dollars within the country, a strategic move aimed at bolstering the value of the Tanzanian shilling amidst a regional scarcity of the dollar.

Marwa Patrick, an economist in BoT’s Monetary Policy Department, elaborated on the policy during an interview at the Dar es Salaam International Trade Fair (DITF). Patrick emphasized that the restriction is designed to alleviate pressure on the shilling and enhance its stability. He noted that government institutions previously conducted transactions in dollars, including fines and fees, which contributed to the demand for foreign currency. By mandating these transactions be conducted in Tanzanian shillings, the BoT aims to fortify the national currency.

Directives and Compliance

On June 20, 2023, BoT issued a public notice reinforcing the government’s directive against using foreign currencies for domestic transactions between Tanzanian residents. This follows earlier directives from May 31, 2023, which prohibit unlicensed international foreign-currency brokers and require that all significant foreign exchange transactions be conducted within the interbank market

Economic Implications

The restrictions come as Tanzania, like many sub-Saharan countries, faces dollar shortages that threaten economic stability. The scarcity has affected various sectors, including energy imports, manufacturing, and tourism. To mitigate the impact, BoT is also engaging in currency swap agreements and international collaborations to increase dollar liquidity

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The government reassures that foreign exchange reserves remain adequate to cover up to five months of imports, aiming to maintain confidence among businesses and investors despite the ongoing challenges

Future Prospects

In addition to these measures, Tanzania is exploring the potential for de-dollarization through bilateral agreements to facilitate trade in local currencies, especially with countries like India. This shift, combined with efforts to boost gold exports, is seen as a crucial step towards stabilizing the economy and reducing dependency on the US dollar.

The central bank remains committed to enforcing compliance and collaborating with law enforcement to combat unauthorized foreign currency trading, ensuring a robust financial framework for the nation’s economic growth.