Dominance of 10,000/- bills tests economy

DAR ES SALAAM: THE growing dominance of the 10,000/- note is testing cash transaction efficiency in Tanzania’s largely cash-driven economy, as households and businesses increasingly rely on high-value bills while smaller denominations have all but disappeared.

Bank of Tanzania data indicate that between 2020 and June this year, circulation of the 10,000/- note surged from 4.2tri/- to over 7.1tri/-, reflecting underlying inflationary pressures and reshaping how money flows across the economy.

In comparison, the 5,000/- note accounted for less than one trillion over the same period, while lower-value notes such as 10/-, 20/-, 50/- and 100/- were gradually phased out and converted to coins, with many disappearing from circulation after 2021.

This shift has left the 10,000/- note as the preferred option for households and businesses handling cash transactions.

Dr Hildebrand Shayo, an economist and investment banker, said the concentration of high-value notes complicates everyday transactions, increases reliance on banks and street money vendors for change and raises operational costs for businesses.

“One key implication is seen on inflationary pressures and erosion of purchasing power,” he said.

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“The increased demand and dominance of higherdenomination notes typically reflects inflation, where smaller denominations lose their practical purchasing power.” Dr Shayo added that the trend signals broader macroeconomic shifts, as prices of goods and services have risen enough that lower denominations, like 1,000/- and 2,000/-, are no longer sufficient for routine transactions.

“Public reliance on 10,000/- notes suggests the cost of living has risen, possibly outpacing wage growth,” he said.

The reduction of smaller notes may particularly affect sectors dependent on microtransactions, including informal retail, public transport and street vendors.

“Businesses and consumers may experience increased transaction costs, for instance giving change, reducing efficiency in day-to-day commerce,” Dr Shayo said.

BoT data indicate that cash transactions are heavily concentrated in 10,000/- notes, suggesting that demand for higher denominations, such as 20,000/-, could emerge if inflation persists.

The current inflation rate stands at around 3.0 per cent. Dr Shayo noted that reliance on high-value notes raises questions about currency management and could increase operational costs for the regulator through higher printing requirements.

Also larger notes are often preferred in unrecorded transactions, which could complicate anti-money laundering efforts and signal growth in the informal economy.

“This can make large cash transactions easier to carry out discreetly,” he said.

The prevalence of highdenomination cash may also slow the adoption of digital payments, especially in rural and semi-urban areas with limited banking infrastructure. It may indicate excess liquidity or weak transmission of monetary policy, with individuals and businesses holding onto cash rather than circulating it.

“The general public may perceive that money is losing value, which can erode confidence in the currency and encourage people to convert cash into hard assets like land, gold, or US dollars,” Dr Shayo said. Juma Mrosso, a resident of Segerea in Dar es Salaam, said, “The 10,000/- note is almost all we use now. Even buying vegetables or paying for transport needs a big note, which is not always convenient.” Mzumbe University senior economics lecturer Dr Eliaza Mkuna said the shift toward higher-value banknotes is primarily driven by inflationary pressures, economic growth and practical convenience.

“As inflation increases the prices of goods and services, higher-denomination notes reduce the physical bulk of cash needed for transactions,” he said.

Dr Mkuna explained that in urban markets, a single 10,000/- note can cover a week’s groceries for a family, whereas smaller notes would require cumbersome stacks of cash.

Transportation costs for intercity buses or wholesale goods often exceed 50,000/-, making high-value notes essential for efficiency.

Additionally, tourist sectors, for instance safari bookings or hotel stays often involve large cash payments due to limited digital infrastructure in remote areas, further fuelling demand for higher denominations.

“The Bank of Tanzania’s response ensures logistical ease but also highlights challenges like currency hoarding, which exacerbates the preference for high-value notes,” he said.

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This trend mirrors global patterns where economies experiencing rising incomes and inflation see circulation shift toward larger denominations to facilitate smoother transactions.

He said the preference for high-value notes in both commercial and household activities reflect practical convenience, as carrying large amounts of smaller notes is cumbersome and inefficient.

Additionally, while higherdenomination notes make transactions easier, they can encourage cash hoarding and informal economic activity, which could affect tax collection and transparency.

“High-value notes are practical for daily transactions, but they also make it easier to conduct unrecorded cash dealings,” Dr Mkuna said.

Overall, the prevalence of the 10,000/- note reflects a combination of inflationary trends, economic growth and practical behaviour by households and businesses. While high-value notes facilitate larger transactions, the trend raises challenges for the central bank, including currency management, the effectiveness of monetary policy and the pace toward a more digital, cashless economy.