Economists laud ban on foreign currency use in local transactions

 

Daily News reporter

DAR ES SALAAM: ECONOMISTS and business analysts have applauded the

government’s determination to ensure that foreign currencies are not used to purchase or pay for domestic goods and services, noting the move will contribute to bolster domestic economy.

The development comes after the Minister for Finance, Dr Mwigulu Nchemba directed all stakeholders involved, such as public institutions, businessmen, civil societies, international organisations and all citizens who used to quote prices of goods and services in foreign currencies to stop by the next month and ensure that prices are quoted and paid in Tanzanian shillings.

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In separate interviews with the ‘Daily News’, they told this paper that discouraging paying for or purchasing domestic goods and services in foreign currencies will not only address the challenge of shortage of US dollars but also strengthen the domestic economy.

Commenting on the matter, economic diplomacy expert, Professor Kitojo Wetengere based at the University of Arusha said that if the directive is properly executed, the domestic economy will be strengthened.

Professor Wetengere noted that the key to the stability of the home economy is the use of domestic money.

“When Tanzanians or stakeholders use dollars to buy domestic goods or services, they increase the demand for dollars, so when you increase the demand, automatically the price for dollars goes up and the Tanzanian currency is going down, which is not good in our economy,” Prof Wetengere said.

Mr Beatus Mlingi, a researcher and analyst manager at Vertex International Securities said the government’s decision to set a deadline for traders to cease conducting transactions in foreign currencies, effective July 1, 2024, is a significant move aimed at bolstering the national economy and ensuring compliance with the country’s laws. This policy can be viewed from multiple perspectives, each with its potential benefits and challenges.

On economic sovereignty and stability, Mr Mlingi said the government’s stance reinforces economic sovereignty. By mandating transactions in the national currency, the Tanzanian shilling, the government aims to stabilise and strengthen its currency. This move can help mitigate the risks associated with currency fluctuations and reduce dependence on foreign currencies. A stronger and more stable local currency can lead to increased investor confidence and economic resilience.

Also, the analyst added that the Minister’s characterisation of foreign currency transactions as economic sabotage underscores the government’s concern about the potential for economic destabilisation. Transactions in foreign currencies can lead to capital flight, reduce tax revenues and create parallel economies that operate outside the formal financial system. By enforcing this policy, the government aims to ensure that economic activities are transparent and that revenues are appropriately captured and taxed, ultimately benefiting the national economy.

A renown economist, Dr Hilderbrand Shayo told the ‘Daily News’ that the move will definitely improve the value of the shilling.

“The shilling will appreciate. Before our shilling was loosing value. But for the minister’s directive to work, this culture should start within the government by not issuing bills. All bills in both public and private sector have to be in local currency. All transactions have to be in shillings,” he noted.

Head of Research and Financial Analytics at Alpha Capital, Mr Imani Muhingo said the government move to ban the use of foreign currencies in local transactions is commendable for both nationalism and economics.

“Currency is based on trust, allowing domestic transactions in a different currency unnecessarily is a slippery slope. But also, domestic transactions in a different currency other than the shilling adds pressure to the value of the shilling,” said Mr Muhingo.

He added that some of the pressure can be alleviated by enforcing the use of the shilling domestically, and only resolve to foreign currency on imports and when it is justifiably necessary.

Tabling the 2024/25 national budget in the National Assembly in Dodoma on Thursday, Dr Mwigulu said Tanzanians should not be forced to purchase goods or pay for services by using foreign currencies.

He said Tanzanians have been buying or paying for items in foreign currencies, including school/tertiary/college fees, house rent, land and various products or services