In a sweeping move that could reshape regional trade dynamics, Tanzania has outright banned the use of foreign currencies—including the Kenyan shilling and US dollar—for domestic transactions. The Bank of Tanzania (BoT) issued the directive on May 2, invoking Section 26 of the Bank of Tanzania Act, 2006, in a decisive effort to fortify the Tanzanian shilling (TZS) and reclaim monetary control.
But here’s the critical question: Could this aggressive policy backfire, sparking trade tensions with Kenya and other neighboring economies?
The New Rules: What’s at Stake?
Under the 2025 Foreign Currency Regulations, all domestic transactions—pricing, payments, and contracts—must now be conducted exclusively in Tanzanian shillings. Violations, including quoting prices in dollars or refusing TZS, will be punishable offenses.
Key exceptions?
- Foreign investors and tourists must exchange currency via banks or Bureau de Change.
- Digital payments (cards, mobile money) in foreign currency remain permissible.
Why Now? Tanzania’s Economic Gambit
BoT officials argue that dollarization has crippled monetary policy, drained forex reserves, and fueled inflation. Villela Waane, BoT’s International Economics Manager, warned in February:
“Rampant use of foreign currency starves our reserves, weakens the shilling, and distorts inflation. This is a fight for economic sovereignty.”
With the TZS trading at 2,687.66 per USD (Bloomberg), Tanzania is betting that forced shilling usage will stabilize its value. But will it?
The Regional Fallout: A Test for East African Unity
Kenya, Tanzania’s top regional trade partner, could feel the pinch. Informal cross-border trade—often conducted in Kenyan shillings—may now face friction. Will Nairobi retaliate with countermeasures?
Potential Scenarios:
- Trade Standoff: If Kenyan businesses resist TZS-only deals, supply chains could freeze.
- Black Market Surge: Could a forex black market emerge, undermining BoT’s efforts?
- EAC Tensions: The East African Community (EAC) promotes a single market—will this move fracture monetary harmony?
What’s Next?
Tanzania’s gamble hinges on enforcement. The BoT urges citizens to report violations, but smuggling forex remains a risk. Meanwhile, investors watch closely: Will this stabilize the TZS or trigger capital flight?
