Tanzania's Central Bank Warns Against Using Foreign Currencies

The Bank of Tanzania (BoT) has issued a public notice on Tuesday warning local businesses against using foreign currencies for transactions and quote all prices in Tanzanian shillings as the "only legal tender in the country".

The move aims to tighten the regulation of foreign currency flows that are prevalent in sectors such as property, health, transport, logistics and education.

The bank warned that it will take action against anyone who violates the directive, which was initially issued in August 2007 and December 2017 to ban domestic payments in foreign currencies for Tanzanian nationals.

"The Bank of Tanzania has recently observed violations of the directives. Therefore, the Bank of Tanzania would like to remind the general public that the Government's directives issued are still valid," the bank said in a statement.

The Banl clarified that tourists or non-resident customers can still pay for various goods and services in foreign currencies.

"This includes services such as accommodation, travel, airport and visas, transit trade and cargo handling. Tourists and non-residents who pay in foreign currencies must provide their identification documents such as passports and certificate of incorporation for companies for proper capturing and classification of statistics," the Bank said.

However, the Bank added that the exchange rate used for such payments should be displayed and should not be higher than the prevailing market rate. At present the US dollar can buy 2,398 Tanzanian shillings.

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Moreover, the Bank stressed that all Tanzanians should use only Tanzanian shillings and should not be coerced or obliged to pay another Tanzanian resident in a foreign currency.

"The Bank of Tanzania also wishes to remind the public that section 26 of BoT Act 2006 stipulates that the Tanzania shilling is the only legal tender in the country. Therefore, any act of refusing payment in Tanzania shillings amounts to violation of the BoT law," the Bank warned.

The Bank is taking steps to maintain the stability of foreign currency flows while giving the Tanzanian shilling a fair value. In a related development, it was revealed at the end of May that the East African country was exploring the possibility of using local currencies in bilateral transactions with a BRICS member, India.

The two countries are expected to use the Rupee Nostro Account System, which allows approved Tanzanian banks to conduct transactions in Indian rupees with shillings, reducing their dependence on major global currencies such as the US dollar.

The Bank of Tanzania's move to restrict the use of foreign currencies in domestic payments comes as the country's citizens have become reliant on major foreign currencies, especially the US dollar, in a bid to protect them from fluctuations of the local currency.

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In recent years, many countries in Africa and other parts of the world have begun to rely less on non-national currencies, particularly the US dollar.

One of the reasons for that is because the American currency has been shown to cause inflation and other problems for other countries, especially those in the developing world.

A study conducted by the Kenyan Institute of Private Enterprise - a business policy think-tank affiliated with the University of North Carolina - found that the US dollar "acts as a mechanism to 'export inflation' to the rest of the global economy".

"The rise in interest rates in the United States to combat inflation is making international transactions difficult for central banks, especially for African countries which are net importers," Malian economist Modibo Mao Makalou told Sputnik Africa last week.

Recently, at a summit of the Common Market for East and Southern Africa (COMESA) in Zambia's capital Lusaka, Kenyan President William Ruto called on African nations to promote trade in national currencies, a move already implemented by other countries such as India, China and Russia.

The Kenyan leader argued that his country was finding it increasingly difficult to import and export because of the dollar's infiltration and monopoly.

"I suggest that we have a mechanism where we can settle all our payments, whether between our countries or externally, using our [local] currencies. And we have a mechanism like the one that has been put up by the Afreximbank [African Export-Import Bank] so that we aren't held hostage by any one currency," Ruto said.