The Bank of Tanzania is taking steps to combat a dollar shortage that has persisted since 2022. This initiative aims to increase foreign currency liquidity within the official banking system.
Selling Dollars to Stabilize the Market
In a shift from its usual approach of buying dollars, the central bank will now be selling them to commercial banks. This strategy aims to:
- Boost market liquidity: By injecting more dollars into the official system, the bank hopes to meet customer demand for foreign currency at prevailing market rates.
- Discourage hoarding: The bank intends to incentivize businesses and individuals holding onto dollars to release them back into the market, thereby reducing reliance on the black market.
Foreign Exchange Reserves and Global Pressures
The Bank of Tanzania acknowledges a decline in foreign exchange reserves, dropping from $5.5 billion in May 2022 to $4.9 billion in May 2023. However, they maintain this is due to various global factors:
- COVID-19 pandemic disruptions
- Russia-Ukraine conflict
- Rising US interest rates
- Climate change
These challenges have disrupted supply chains, causing a global rise in commodity prices. Consequently, Tanzania requires more dollars to import the same amount of goods.
Additional Measures
In February 2024, the Bank of Tanzania launched new treasury bond auctions:
- Manage domestic debt
- Increase money supply in the face of foreign currency shortages
These bonds have maturities of 10, 15, 20, and 25 years.
Tanzania and the Wider African Context
Tanzania is not alone in facing foreign currency shortages. Several other African nations, including Kenya, Egypt, Zimbabwe, Nigeria, Ghana, and Zambia, are grappling with similar challenges. The dominance of the dollar in global transactions makes it essential for these countries to have sufficient reserves to settle foreign debts and pay for critical imports.
Leave a comment