Tightening forex use: New rules in offing

MTWARA: THE government is finalising new guidelines to enforce the exclusive use of the shilling in domestic transactions, as mandated by the Bank of Tanzania Act 2006.

The initiative, driven by the Ministry of Finance and the Bank of Tanzania (BoT), aims to strengthen the shilling, enhance monetary sovereignty, and curb the unnecessary demand for foreign currency.

BoT Economist Dominic Mwita, said at a recent seminar for business and finance journalists in Mtwara, that that these guidelines align with Section 26 of the BoT Act, which designates the shilling as the sole legal tender.

“The government is working on regulations and guidelines on the use of foreign currency,” he said at the seminar aimed to enhance journalists’ understanding of the central bank’s operations and improve public awareness of key financial issues.

This latest push follows years of government efforts to combat the widespread use of foreign currencies, particularly the US dollar, in domestic transactions a practice that fuels “dollarisation” and weakens the local currency.

Past attempts, including public notices in August 2007 and December 2017 prohibiting domestic payments in foreign currencies between Tanzanian residents, yielded minimal results.

Driven by mounting public concern, the Finance Act 2024 was enacted, marking a decisive step to fortify the Tanzanian shilling. This legislation mandates the exclusive use of the shilling for all domestic transactions, effectively prohibiting the use of foreign currencies.

The Act amends the Bank of Tanzania Act, reinforcing that the shilling is the sole legal tender for domestic transactions. Transacting in other currencies is now considered an offence, with exceptions to be prescribed by the Minister of Finance. Crucially, the Finance Act 2024 introduces penalties for violations, with detailed regulations forthcoming.

According to Dr Mwita, government institutions like the Tanzania National Parks Authority (TANAPA) have already implemented the directive, requiring fees to be paid in shillings.

He clarified that refusing payment in shillings violates the law.

“That is a violation of the law for both the giver and the receiver,” Dr Mwita said, urging public cooperation. Citizens are encouraged to report violations to the police.

Enforcing the shilling’s sole legal tender status will yield significant benefits, including enhanced monetary policy, greater control over monetary supply, and increased effectiveness in managing the economy, he said.

He also said there were seigniorage benefits revenue generated from issuing currency and the reduction of foreign exchange demand, particularly for US dollars, which will strengthen foreign currency reserves and address existing shortages.