Bank of Tanzania Shifts Tactics, Begins Selling US Dollars to Alleviate Foreign Currency Crisis

Bank of Tanzania Shifts Tactics, Begins Selling US Dollars to Alleviate Foreign Currency Crisis

The Bank of Tanzania has announced its decision to sell US dollars to commercial banks in a bid to tackle persistent currency shortages that have affected the country since 2022.

This move, as stated by the bank, aims to enhance foreign currency liquidity in the market and ensure that customers’ demands for foreign currency are met through licensed financial institutions.

Shift in Central Bank Strategy

Traditionally, the central bank has been involved in buying dollars. However, with this recent announcement, there has been a shift in strategy, with the bank opting to sell dollars instead.

This strategic shift is intended to increase market liquidity and encourage individuals and businesses holding onto dollars to release them, thereby reducing reliance on parallel (black) markets that have exacerbated the dollar crisis in Tanzania.

Global Factors Impacting Foreign Exchange Reserves

The decision comes in the wake of a reported decline in Tanzania’s foreign exchange reserves, dropping from $5.5 billion in May 2022 to $4.9 billion in May 2023.

The bank attributes this decline to various global factors, including the COVID-19 pandemic, the Russia-Ukraine conflict, increased US interest rates, and climate change, all of which have disrupted supply chains and led to higher commodity prices globally.

Domestic Measures to Manage Debt and Money Supply

To manage domestic debt and enhance money supply amidst foreign currency shortages, the Bank of Tanzania initiated a new series of treasury bond auctions in February 2024.

These auctions reintroduced treasury bonds with maturities of 10, 15, 20, and 25 years, aiming to address fiscal challenges and stabilize the economy.

Regional Context of Currency Shortages

Tanzania is not alone in facing foreign currency shortages, as several other African nations, including Kenya, Egypt, Zimbabwe, Nigeria, Ghana, and Zambia, are grappling with similar challenges.

Given the US dollar’s predominant role in global transactions, these countries heavily rely on it to settle foreign debts and procure essential goods and services.

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