Tanzania breaks with the Dollar, shakes EAC's monetary future

By Simon Mulongo

In a dramatic policy shift that stunned markets and regional observers alike, the Bank of Tanzania (BOT), on April 30, this year, issued a decree banning the use of foreign currencies — chiefly the US dollar — for all domestic transactions. 

The measure, effective immediately, requires that all contracts, leases, tuition agreements and invoices, previously denominated in dollars or other foreign currencies be converted into Tanzanian shillings (TZS) within two months. 

The directive is bold, but its implications are bolder. While de-dollarisation is not new in theory, its unilateral enforcement in East Africa is unprecedented. 

For decades, the US dollar has served as an unofficial trade lubricant across the East African Community (EAC), especially in sectors with weak local currency confidence — such as real estate, tourism, cross-border commerce and private education. 

In border towns like Namanga, Rusumo and Mutukula, the greenback often functions as a shared currency among citizens from Tanzania, Kenya, Rwanda and Uganda. 

That makes this move not merely a domestic policy manoeuvre, but a regional economic tremor. 

The numbers reveal the stakes. According to the EAC Secretariat (2024), informal cross-border trade accounts for 31.7% of intra-EAC economic activity, valued at over $3.1b annually. 

A significant portion of this is transacted in dollars, especially where price stability and currency acceptance are paramount. 

Analysts from the World Bank’s Africa Trade Integration Index warn that a 2-4% increase in transactional frictions — such as forced currency conversions, pricing uncertainty and parallel market distortions — could slash informal trade flows by up to 12% in a fiscal year. 

But President Samia Suluhu Hassan’s government insists that the long-term gains will outweigh short-term dislocations. 

Officials cite imported inflation and exchange rate vulnerability as key motivators. 

In 2023, a 100-basis point hike by the US Federal Reserve caused a 6.8% depreciation of the TZS within weeks, triggering inflation in fuel, medicine and construction inputs. The BOT sees this not only as a fiscal exposure, but also as a monetary sovereignty crisis. 

This philosophical turn places Tanzania squarely within a broader Global South currency rebellion, echoing moves by Russia, China, India and several BRICS-aligned economies seeking to reduce dollar dependency. 

It also aligns with post-Keynesian economic theory, which rejects the notion of money as a neutral exchange medium. Instead, it embraces the view that money is a public institution — shaped, issued and regulated by the state to serve national objectives. 

By enforcing the TZS as the sole medium of domestic exchange, the BOT is asserting the right to define value on its own terms. But this unilateral move risks unsettling the EAC’s already-fragile monetary integration agenda. 

Simon Mulongo

The East African Monetary Union, envisioned under the 2013 Protocol, is now postponed until 2031 due to poor convergence among member states. 

Ironically, Tanzania is the only country meeting all three convergence benchmarks: inflation under 8%, fiscal deficit below 3% of gross domestic product (GDP), and public debt not exceeding 50% of GDP. 

Yet it is Tanzania that now appears least aligned with the union’s integrationist ethos. Countries like Kenya and Uganda — where dollar usage remains deeply entrenched — may find Tanzania’s path difficult to emulate. 

In Nairobi, over 75% of commercial leases are dollar-based; in Kampala, nearly 70% of high-end medical services are billed in dollars.

These countries risk losing competitive edge in regional service industries if forced to adopt a similar policy without an adequate buffer or regional transition plan. 

For now, hopes for a co-ordinated monetary policy hinge on the underdeveloped Pan-African Payment and Settlement System (PAPSS). 

Despite its theoretical promise, PAPSS handles less than 15% of real-time transactions within East Africa, hindered by lack of interoperability and trust in digital infrastructure. 

Without scalable regional alternatives, Tanzania’s policy may fuel currency speculation, encourage black-market trading and undercut trade volume, especially among low-income, border-based traders. 

Yet, this rupture also provides a rare moment of clarity. Tanzania has forced the EAC into an uncomfortable but necessary dialogue: Should regional integration proceed on a foundation still beholden to external currencies? 

Or should East Africa confront its post-colonial currency dependencies head-on and build an architecture that reflects the sovereignty it so often proclaims? 

The analytical thud is this: Tanzania’s move is not an economic aberration — it is a philosophical intervention. 

It confronts the illusion that regionalism and monetary dependence can co-exist indefinitely. The EAC must now choose: evolve together in redefining value, or drift apart under the weight of competing monetary truths.

The writer is a security and governance consultant — EMANS Frontiers Ltd.