Between August 2007 and December 2017, the Government of Tanzania issued several directives prohibiting the use of foreign currencies for domestic payments of goods and services within the United Republic of Tanzania.

Despite these efforts, the usage of foreign currency persisted in certain local transactions. To enhance regulatory enforcement and restore monetary sovereignty, the Governor of the Bank of Tanzania issued a public notice on June 20, 2023, referencing directives established by the Minister for Finance during the 2023/2024 budget speech. 

These directives resulted in a legislative amendment to the Bank of Tanzania Act through the Finance Act of 2024. The amendment introduced a new Section 26(2), which makes it an offense for any person to conduct transactions in any currency other than the Tanzanian Shilling within the United Republic of Tanzania.

In line with this amendment, the Ministry of Finance issued the long-anticipated Foreign Exchange Use Regulations on March 28th, 2025, under Government Notice No. 198 of 2025. These Regulations are part of a broader government initiative to enhance Tanzania’s foreign exchange framework, promote macroeconomic stability, and ensure the prudent and efficient use of foreign currency within the economy. 

The Regulations provide clear guidance on the permissible use of foreign currency, reinforcing the Tanzanian Shilling as the sole legal tender for domestic transactions involving goods and services. For financial institutions, the implications are significant. 

Banks and other financial service providers must now review, align, and, where necessary, revise their offerings to ensure compliance with the new legal framework. In this article, I will outline the key impacts of the Foreign Exchange Use Regulations on the banking sector in Tanzania: 

•             Operational Implications for Banks: The issuance of the Foreign Exchange Use Regulations has introduced significant operational implications for banks operating in the country. The most immediate implication for banks is the requirement to ensure that all domestic payments for goods and services among residents are conducted in Tanzanian Shillings. This shift necessitates a comprehensive review of existing banking products, particularly those denominated in foreign currency. 

From an operational standpoint, banks must also update their core banking and transaction monitoring systems to align with the new rules, which may involve significant investment and logistical challenges. The regulations also impact Foreign Exchange (FX) liquidity management and treasury operations.

 As the domestic use of foreign currency diminishes, the supply-and-demand dynamics in the FX market are likely to shift, potentially resulting in greater volatility and pressure on banks’ ability to source foreign exchange. Treasury teams must, therefore, strengthen their forecasting, pricing, and hedging strategies while maintaining strict compliance with updated Bank of Tanzania reporting requirements. 

●             Compliance and Risk Management Challenges: One of the primary implications of the new Foreign Exchange Use Regulations is the increased regulatory compliance burden. Banks must now enhance their internal systems, update policies, and train staff to ensure that customers are not conducting unauthorized domestic transactions in foreign currency. 

This involves continuous monitoring and robust KYC procedures to detect and prevent breaches, as non-compliance could lead to severe penalties and reputational damage. Additionally, the regulations compel banks to revisit existing loan agreements that were previously structured in foreign currency. Facilities issued in foreign currency will only be permissible if the client can clearly demonstrate a consistent income stream in that currency, such as from exports or regional trade. This presents legal and contractual risks, particularly if customers are unable or unwilling to convert to Tanzanian shillings upon renewal. 

The potential for disputes or defaults increases, especially for clients who generate revenues in foreign currency and now face a mismatch between their income and their loan obligations. Overdraft and working capital facilities could become underutilized or default-prone, not because of business weakness but due to FX conversion inefficiencies.

 This requires banks to proactively restructure such facilities into TZS and align them with the customer's revised cash flow structure. Otherwise, this mismatch could result in higher credit risk and contribute to non-performing loans, which poses a threat to the stability of a bank’s loan portfolio. 

To summarize, while the Foreign Exchange Use Regulations aim to enhance macroeconomic stability and encourage local currency use, they require banks in Tanzania to make comprehensive changes in their compliance frameworks and multiple operational areas. Proactive adaptation, client education, and enhanced internal coordination will be essential in navigating this transition successfully.

Kelvin Mkwawa, MBA (pictured) is the Seasoned Banker based in Dar es Salaam. He can be reached through Email address: Kelvin.e.mkwawa@gmail.com