Bank of Tanzania Issues Restrictions on Use of Foreign Exchange

The Bank of Tanzania recently issued a public notice (the Public Notice) dated 20 June 2023 reminding the public of the Government’s directive prohibiting the use of foreign currencies for domestic payments of goods and services between residents of the United Republic of Tanzania. The Bank of Tanzania issued the first notice on restrictions for the use of foreign currencies in August 2007, followed by the second notice which was issued ten (10) years later that is in December 2017.

Under the Public Notice, the Bank of Tanzania reminds the public to adhere to the following restrictions:

1. That all prices for goods and services in relation to the following, between residents in Tanzania must be quoted in Tanzania shillings;
   (a) rent for land, housing, and office;
   (b) fees for education;
   (c) medical services,
   (d) equipment, and reagents;
   (e) transport, logistics and port services;
   (f) electronic equipment and telecommunication services; among others;2. That domestic payments for any other goods or services between residents in Tanzania should be made in Tanzanian shillings only; and

   3. That residents should not be forced or be obliged to make payment to another resident of the United Republic of Tanzania for any good or service in foreign currency.

Prior to the above issuance of the Public Notice, the Bank of Tanzania issued Directives (the Directives) on Foreign Exchange Operations on 31 May 2023 as part of its statutory mandate, which reviewed the foreign exchange market operations in consideration of the current market development. Under the Directives, the Bank of Tanzania reminded the public, (particularly dealers of foreign exchange) to observe the requirements under the foreign exchange regime in the country at all-time which include but are not limited to the following:

1. Prohibited the use of international foreign-currency brokers who are not licensed in Tanzania;
2. All foreign transactions exceeding USD 1 million in the retail market are to be traded within the interbank foreign exchange market at the prevailing market rate;
3. Foreign exchange dealers are required to strictly observe the procedures for Know Your Customer (KYC) in their undertakings.
4. The limit for the foreign exchange Net Open Position (NOP) shall be 10 percent of Core Capital and has to be observed at all times; and
5. All Letters of Credit (LCs) for transit cargoes must be funded by foreign exchange mobilised from respective destination countries.

Additionally, the Directive has emphasised that compliance is mandatory whereby an infringement shall attract penal sanctions as provided for in the Foreign Exchange Act, 1992. In a statement published recently, the Bank of Tanzania stated that it will continue to collaborate with law enforcement agencies in the country to combat those involved in the unauthorised trading of foreign currencies. The Bank of Tanzania has urged stakeholders in the banking sector to cooperate and report any instances of unauthorised foreign exchange activities.

Should you have any questions regarding the information in this legal alert, please do not hesitate to contact, Geofrey Dimoso or Shemane Amin.

___________________

Contributors
1. Samiath Mohammed – Principal Associate
2. Maria Raymond Ringia – Trainee Lawyer