Tanzania’s Foreign Currency Use Ban: Economic Prudence or Regional Headache?

In a move that signals both economic pragmatism and a careful recalibration of monetary policy, Tanzania recently (effective March 31, 2025) formally prohibited the use of foreign currencies in local transactions. The new rules, gazetted under the Foreign Exchange Regulations (Control of Currency in Domestic Transactions) 2025, require all domestic payments for goods and services to be settled in Tanzanian shillings (TZS), save for a few clearly defined exemptions. While the decision has naturally sparked conversation among the business community, it aligns squarely with a growing wave of currency sovereignty measures being implemented across several African and emerging market economies.

At its core, this policy represents a strategic attempt by the government to stabilise the local currency, protect its monetary policy framework, and limit vulnerabilities associated with partial dollarisation: a challenge that has quietly shaped Tanzania’s economic landscape for years.

A Measured Response to a Dollarised Economy

For decades, Tanzania’s economy has operated in a dual-currency environment, particularly in sectors such as tourism, real estate, and the import trade. In bustling coastal towns, luxury hotels often quoted room rates in US dollars. At the same time, high-end real estate leases and even automotive transactions found it more convenient to peg prices to stable foreign currencies. It was a pragmatic arrangement in an economy where currency fluctuations and inflation occasionally tested business predictability.

Yet, this practice has also carried systemic risks. Data from the Bank of Tanzania in 2022 revealed that nearly 14% of high-value domestic transactions were conducted in foreign currencies, particularly in areas with a significant presence of foreign investors or expatriates. While this offered a hedge for businesses against local currency depreciation, it posed challenges for monetary authorities attempting to maintain price stability and safeguard foreign reserves.

The country’s inflation rate, which averaged 4.1% in 2023, increased to 5.7% in 2024, primarily driven by global commodity price volatility and a weakening local currency. The Tanzanian shilling lost nearly 8% of its value against the US dollar over the same period, placing further strain on import-dependent sectors and increasing pressure on household purchasing power. It’s within this context that the government has sought to consolidate monetary control and anchor inflation expectations by ensuring the shilling’s exclusive use in domestic commerce.

What It Means for Business and Trade

The immediate effect of the regulation is operational. Businesses in the tourism, real estate, logistics, and retail industries, which have historically been inclined to transact in hard currency, are now adjusting their pricing models, contract terms, and cash flow structures to align with the new requirements. In the tourism sector alone, which contributes 17.2% to Tanzania’s GDP and supports over 1.5 million jobs, many operators have typically priced safaris, excursions, and hotel stays in US dollars to cater to international clientele. They now must quote and settle these services in Tanzanian shillings, with currency conversion facilitated through licensed financial institutions.

Some industry players have voiced concerns about exposure to currency fluctuations and the potential administrative burden of constant conversions. But for policymakers, this is an acceptable trade-off in pursuit of macroeconomic stability. Importers and distributors, particularly in the automotive, construction, and pharmaceutical sectors, are revising their pricing strategies, mindful that exchange rate risks will now be more directly embedded in their cost structures.

For foreign investors and regional businesses operating across borders, the regulations introduce a layer of complexity in compliance. Under the African Continental Free Trade Area (AfCFTA) and East African Community (EAC) frameworks, businesses are encouraged to harmonise their transaction systems and facilitate cross-border trade. Yet, with currency restrictions varying between states, intra-African trade operators, particularly those in logistics, digital commerce, and financial services, will need to carefully manage their forex exposure and ensure alignment with domestic regulations in each jurisdiction.

A Reflection of Shifting Global Protectionism

Tanzania’s policy does not emerge in isolation. Across Africa and other emerging markets, governments are increasingly reasserting control over capital flows and currency usage in response to the volatility of global financial markets. Between 2022 and 2024, over three dozen developing economies introduced foreign exchange controls or tightened currency regulations, according to UNCTAD’s latest Trade and Development Report.

This recalibration reflects a broader shift towards economic nationalism in an era defined by geopolitical tensions, supply chain disruptions, and capital flight risks. With the International Monetary Fund reporting average capital outflows of USD 1.3 billion per month from partially dollarised economies in 2023, it’s no surprise that policymakers are prioritising domestic monetary stability.

Ethiopia, Nigeria, and Zimbabwe have all implemented similar measures in recent years, seeking to reduce their economies’ dependence on foreign currencies and safeguard against reserve depletion. In Tanzania’s case, the move also strengthens the Bank of Tanzania’s monetary policy tools and reduces speculative foreign exchange activity, which has often fueled the growth of the parallel market.

Navigating Regional Trade Commitments

At the regional level, the policy presents both challenges and opportunities. The EAC’s ambition of a monetary union and a single regional currency, initially slated for 2024 but delayed due to convergence hurdles, requires member states to harmonise their monetary policy regimes and progressively liberalise capital accounts. Tanzania’s directive, while nationally justified, adds another layer of complexity to this integration agenda.

However, it also highlights the importance of establishing robust regional payment and settlement systems that can accommodate national currency mandates while facilitating cross-border trade. The Pan-African Payment and Settlement System (PAPSS), launched under the AfCFTA framework, offers a pathway for enabling real-time, multi-currency payments without the need for US dollar intermediation. In this context, Tanzania’s currency policy could incentivise faster adoption of regional solutions that ease trade payments while respecting domestic monetary sovereignty.

A Strategic Balancing Act

Far from an insular or reactionary move, Tanzania’s decision appears to be a carefully considered policy adjustment tailored to current economic realities. With inflationary pressures, exchange rate volatility, and external debt management challenges persisting across Africa, governments are inevitably recalibrating policy instruments to fortify their domestic economies.

For Tanzania, prioritising the Tanzanian shilling in local transactions reinforces economic identity, bolsters financial system integrity, and grants the central bank greater policy traction. As businesses adjust to a new operating environment, they retain access to official foreign exchange markets for legitimate international obligations, ensuring continuity of trade.

As global financial dynamics evolve and protectionist currents reshape emerging market policy responses, Tanzania’s experience offers valuable insights into the delicate equilibrium between national monetary autonomy and regional economic integration. If managed prudently and complemented by supportive trade facilitation reforms, this policy could enhance currency resilience, strengthen investor confidence, and position Tanzania as a steady player in an increasingly unpredictable global economy.