CURRENCY is the primary medium of exchange in the modern world, having replaced the barter system long ago as a means of trading goods and services. The use of currency in some form dates back at least 3,000 years.

Though money and currency are closely related, they are distinct concepts. Currency is a form of money issued by the government, functioning as a payment method within a specific jurisdiction in a trading environment.

Coins, as a form of money, have historically played a crucial role in facilitating trade across the globe. Money represents a broader system of perceived value that enables transactions between buyers and sellers, facilitating the exchange of goods and services in a market economy.

The introduction of money has significantly improved efficiency by eliminating the limitations of the barter system, which required a direct exchange of goods and services without a common unit of value.

Every nation places great importance on its local currency, as it simplifies domestic transactions and stimulates economic activity by encouraging citizens to purchase locally produced goods and services. 

Additionally, local currencies provide governments with economic control, allowing them to adjust exchange rates to either boost exports or manage inflation, depending on national policies.

Research has shown that using local currency for transactions is generally more cost-effective than using foreign currencies for services, including payments to overseas suppliers and vendors. 

Conducting business in local currency minimizes the expenses linked to foreign exchange conversions, enabling businesses to maximize profits while improving customer relationships and market accessibility.

Paying for goods in local currency helps consumers avoid unnecessary markups and save money while preserving the value of the national currency. This principle is especially relevant in international transactions, such as online shopping or travel.

The advantages of using local currencies are numerous, particularly in strengthening trade and investment foundations. Conducting transactions in local currency reduces exposure to exchange rate fluctuations, providing businesses with greater financial stability and minimizing the risks associated with currency volatility. This fosters a more predictable economic environment.

Furthermore, local currencies support domestic industries by promoting exports and local production. This, in turn, leads to job creation, increased investment, and overall economic growth. The elimination of multiple currency conversions streamlines trade transactions, making them more efficient and cost-effective while reducing complications related to fluctuating exchange rates.

Encouraging the use of local currencies fosters closer economic integration among trading partners, facilitating intra-regional trade, investment, and cooperation. Strengthening economic ties in this manner promotes regional stability and development.

Financial experts highlight that utilizing local currencies enhances financial inclusion, allowing businesses and individuals with limited access to foreign currencies to engage more actively in trade and investment. This fosters economic growth and development at the grassroots level.

Recognizing the importance of local currency, the Bank of Tanzania (BoT) has implemented strict measures to ensure its usage in business transactions. As part of its policy, traders are prohibited from using foreign currencies in local transactions to safeguard the economy and tourism sector.

BoT asserts that using local currency is crucial for daily business activities, as it helps prevent inflation spikes and supports small-scale traders and investors. 

Economist Dominic Mwita, from BoT’s Economic Research and Policy Directorate, reiterated this point during a recent training seminar in Mtwara. He discussed the government’s ban on pricing goods and services in foreign currencies within local markets.

As the country’s financial sector regulator, BoT mandates that all pricing and payments within Tanzania must be conducted in Tanzanian shillings. It is illegal to demand payment in foreign currency for local transactions.

Mwita emphasized that using the national currency for domestic transactions reduces unnecessary foreign currency demand, which in turn alleviates difficulties in acquiring foreign exchange for international trade. He also highlighted that maintaining a stable financial sector by prioritizing the shilling reduces dependence on commercial banks for foreign currency loans.

He further noted that a depreciated shilling makes local exports, such as cashew nuts, more competitive in global markets, as buyers require fewer foreign currency units to make purchases. He warned that relying on foreign currencies for local transactions weakens national sovereignty and limits the effectiveness of monetary policies aimed at controlling inflation.

A key advantage of using the national currency is that it allows a country to retain control over its monetary policies and money supply. Skipping the national currency in favor of foreign alternatives reduces a country's economic autonomy and hands monetary influence to foreign economies.

“A business or individual conducting transactions in foreign currency within the country is breaking the law. Both the payer and the recipient are in violation, and many people are unaware that they should report such practices to the authorities,” Mwita stated.

The dominance of the U.S. dollar in global transactions has persisted for years, but advancements in technology have made payments in local currencies just as efficient as using US Dollar. Consequently, businesses and financial advisors should consider the benefits of local currency when engaging in international trade.

Under the Bank of Tanzania Act of 2006, BoT holds the sole right to issue banknotes and coins as legal tender within the country. The bank is responsible for designing and procuring currency to meet the country’s economic needs.

For a currency to function effectively as a medium of exchange, store of value, and unit of account, it must meet six essential characteristics: divisibility, portability, acceptability, scarcity, durability, and stability in value.

Tanzania is endowed with abundant natural resources and boasts one of the highest forest covers in the East and Southern African region. The country’s rich wildlife and rapidly growing tourism sector currently contribute 18 percent of Tanzania’s Gross Domestic Product (GDP).

To maximize economic benefits, Tanzania should ensure that local currency is used across all trade and tourism sectors visited by international tourists. Enforcing this policy will strengthen the nation’s economic value at an international level and promote sustainable economic growth.