Tanzania’s financial landscape has undergone a dramatic shift with the recent implementation of new regulations that prohibit the use of foreign currencies, including the US dollar, for local transactions. These new rules, announced by the Bank of Tanzania and published in the Government Gazette on March 28, 2025, have set the stage for a significant policy overhaul aimed at curbing the depreciation of the Tanzanian shilling and addressing the growing reliance on foreign currencies in the country’s economy.

The ban, which prohibits businesses and individuals from quoting, advertising, or accepting foreign currencies for domestic transactions, is part of a broader effort to stabilize the Tanzanian shilling, which has become one of Africa’s worst-performing currencies in 2025. As of May 4, 2025, the Tanzanian shilling (TZS) was trading at TZS 2692 per US dollar, a sharp depreciation that has spurred both the government and the central bank into action.

The Impact of Dollarization in Tanzania

Dollarization, or the widespread use of foreign currencies in local transactions, has been an ongoing issue in Tanzania for several years. This trend has been exacerbated by the country’s volatile inflation rate and the general instability of the Tanzanian shilling. As businesses and individuals increasingly resorted to using US dollars and other foreign currencies, the demand for the Tanzanian currency weakened further, exacerbating inflationary pressures and complicating monetary policy implementation by the Bank of Tanzania.

The informal use of foreign currencies has also been seen as a barrier to achieving the central bank’s goals of economic stability and financial inclusivity. Despite efforts to encourage the use of the Tanzanian shilling, many Tanzanians, particularly those involved in the informal sector, found it easier and safer to transact in US dollars, especially in times of economic uncertainty.

What the Bank of Tanzania Said

The Bank of Tanzania’s announcement has sent ripples through the economy, with many businesses and individuals now scrambling to adapt to the new regulations. In a public notice issued on Thursday, the central bank clarified that, under the new rules, all goods and services in Tanzania must be priced and paid for exclusively in Tanzanian shillings.

“Under these Regulations, pricing and payment for all goods and services within the country must be in Tanzanian Shillings. Therefore, it is an offence to quote, advertise, or indicate prices in foreign currency, to compel, facilitate, or accept payment in foreign currency, or to refuse payment made in Tanzanian Shillings,” the statement from Bank of Tanzania Governor Emmanuel M. Tutuba read.

This sweeping measure aims to mitigate the informal dollarization that has taken hold across the nation. The Bank of Tanzania has emphasized that it will be closely monitoring the enforcement of these regulations, encouraging the public to report violations to law enforcement agencies, including the Financial Intelligence Unit and the Police Force.

Transition for Foreigners in Tanzania

While the ban primarily targets Tanzanians, foreigners, including tourists, will also need to adapt to the new payment landscape. Foreign nationals will be required to exchange their foreign currencies into Tanzanian shillings at commercial banks or licensed Bureau de Change outlets in Tanzania. However, the use of bank cards and digital payment methods remains permitted, allowing foreigners to continue transacting as they would in many other countries around the world.

The inclusion of foreign nationals in the new rules is a significant step, as it ensures that the Tanzanian government can control the flow of foreign currencies within its borders. This policy change reflects the government’s efforts to centralize control over foreign exchange transactions and promote the use of the Tanzanian shilling in both local and foreign transactions.

Addressing Inflation and Economic Pressure

The Tanzanian shilling has faced immense pressure in recent months, making it one of the weakest-performing currencies in Africa. As of May 4, 2025, the Tanzanian shilling was trading at TZS 2692 per US dollar, a stark decline that has raised concerns among economists and policymakers. This depreciation is seen as a reflection of broader economic challenges, including inflationary pressures, trade imbalances, and global economic uncertainties.

The move to enforce the exclusive use of Tanzanian shillings in local transactions comes as part of the government’s broader strategy to stabilize the currency and stem the slide in its value. Since March 11, 2025, when the Tanzanian government announced the introduction of stringent foreign exchange regulations, the central bank has been working diligently to mitigate the risks of continued depreciation. Despite these efforts, the Tanzanian shilling remains under significant strain, and many businesses are bracing for the impact of the new regulations on their operations.

Public Response to the Ban

The public reaction to the Bank of Tanzania’s new regulations has been mixed. On one hand, some business owners and analysts have welcomed the move, believing that it could help stabilize the Tanzanian currency and reduce inflation in the long run. Supporters of the ban argue that the widespread use of foreign currencies undermines the value of the Tanzanian shilling and hampers the central bank’s ability to manage the country’s monetary policy effectively.

On the other hand, many Tanzanians, especially those who rely on the informal economy, are concerned about the practicality of the new regulations. For small business owners and street vendors who have grown accustomed to dealing in US dollars, the sudden shift to the Tanzanian shilling could create challenges. Many Tanzanians have also expressed concerns about the potential for price inflation, as businesses may raise their prices in response to the devaluation of the local currency.

“There is a lot of uncertainty about how businesses will adjust to these new rules,” says Nasra Mbaruku, a small business owner in Dar es Salaam. “For many of us, dealing in US dollars has been the easiest way to protect ourselves from inflation. Now, we are unsure how to handle our pricing in Tanzanian shillings.”

Government’s Economic Strategy

The government of Tanzania has long faced challenges related to its fiscal and monetary policies, particularly in balancing the need for economic growth with efforts to curb inflation and stabilize the currency. President Samia Suluhu Hassan, who has been in office since 2021, has made several attempts to boost Tanzania’s economy through infrastructural development, foreign investment, and export diversification. However, despite these efforts, the country’s currency has continued to weaken.

Tanzania’s heavy reliance on imports, particularly fuel and machinery, has also contributed to the strain on the shilling. As global commodity prices rise, the cost of these imports increases, putting additional pressure on the local currency. This has been compounded by the fact that many Tanzanians and businesses have increasingly turned to foreign currencies for transactions, further eroding the shilling’s value.

Future Outlook for the Tanzanian Economy

Looking ahead, the new foreign exchange regulations represent a bold step in the government’s attempt to stabilize the Tanzanian economy. While the immediate impact of the ban remains to be seen, economists are cautiously optimistic that the policy could help strengthen the Tanzanian shilling in the long term, especially if it is complemented by other measures to address inflation, improve domestic production, and boost foreign investment.

However, there are concerns that the shift could lead to unintended consequences, such as higher costs for businesses and a reduction in consumer spending. Some analysts have warned that the ban could exacerbate economic inequality, as those who rely on foreign currencies may find themselves at a disadvantage compared to wealthier individuals and multinational corporations that have greater access to capital.

In the short term, the success of the new regulations will largely depend on how well the government can manage the transition and maintain public confidence in the Tanzanian shilling. If the government can demonstrate that the new measures are effective in curbing inflation and stabilizing the currency, it could pave the way for more sustainable economic growth in the future.

Conclusion

Tanzania’s decision to ban the use of foreign currencies, including the US dollar, for local transactions marks a pivotal moment in the country’s economic policy. By enforcing the exclusive use of the Tanzanian shilling, the government aims to curb dollarization, stabilize the currency, and regain control over its monetary policy. While the move has been met with mixed reactions, it underscores the government’s commitment to addressing the underlying economic challenges facing the nation.

As Tanzania navigates the complexities of this policy shift, the coming months will reveal whether these new regulations can help stabilize the economy, bolster the value of the Tanzanian shilling, and foster a more resilient financial system. For now, businesses, consumers, and policymakers alike must adapt to the changes, hoping that the benefits will outweigh the challenges.

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Photo source: Google

By: Montel Kamau

Serrari Financial Analyst

3rd May, 2025