Liquidity in Tanzania's retail foreign exchange market has significantly improved; rising to an average of $69 million per day from late March to date—up from $40 million recorded between January and March, and $30 million in March 2024.

Emmanuel Akaro, Director of Financial Markets at the Bank of Tanzania (BoT), told journalists yesterday in Dar es Salaam that the rise is largely due to individuals and institutions halting the use of foreign currency for domestic transactions and instead opting to pay in local currency.

“Traditionally, the January to May period records lower foreign exchange inflows,” said Akaro. “But this year, liquidity has doubled. To further strengthen the shilling, the BoT has been buying gold since October last year, contributing an additional $450 million to foreign exchange reserves.”

Additionally, the central bank has injected $130 million into the local market via commercial banks since the beginning of 2025 to bolster the shilling’s performance against the US dollar.

A turning point came on March 28, 2025, when the government, through Finance Minister Dr. Mwigulu Nchemba, gazetted the Foreign Exchange Regulations 2025. 

The new rules prohibit the use of foreign currencies for transactions involving goods and services conducted within the country.

The regulations also ban the facilitation, charging, or enforcement of payments in foreign currency for domestic transactions. 

However, exceptions are provided for specific cases including government payments to international institutions, transactions involving embassies and international organizations, duty-free shops, and loans issued in foreign currency. These transactions are still permitted to be settled in US dollars.

The regulations further require that all contracts signed from March 28, 2025, onward must be denominated in Tanzanian shillings. Contracts signed before that date is granted a one-year grace period to comply.

This move is built upon earlier efforts. In June 2023, the BoT reminded the public of prior government directives from August 2007 and December 2017 banning the use of foreign currencies in local transactions between Tanzanian residents.

To enforce the new framework, the government amended Section 26 of the Bank of Tanzania Act, 2006, in June 2024. The amendment criminalizes the use of any currency other than the Tanzanian shilling in domestic transactions.

“The section now includes two new subsections, one of which states that any person using foreign currency instead of the legal tender commits an offense,” Akaro emphasized.

He added that the BoT had observed widespread use of the US dollar in payments for services like school fees, house rent, and contracts involving cash crops.