Contributed by Peter Kasanda, Chair, Clyde & Co Africa Committee
Governments across Africa are increasingly revisiting how local currency is used within their domestic economies. This trend is not occurring in isolation. Global inflationary pressures, volatile capital flows and heightened geopolitical competition have sharpened concerns around economic sovereignty and regulatory control. Currency policy has therefore re-emerged as a central lever through which states seek to stabilise domestic markets and assert authority over economic activity conducted within their borders.
Tanzania and Zambia illustrate this shift well. Both jurisdictions have introduced measures restricting the use of foreign currency in domestic transactions, subject to specified exemptions. While the shared objective is to curb informal dollarisation and reinforce domestic currency usage, the two frameworks differ materially in design, scope and legal certainty. These differences have important implications for transactional structuring, risk allocation and long-term investment planning.
Tanzania’s Regulations on the Use of Foreign Currency, 2025
Tanzania’s Regulations on the Use of Foreign Currency, 2025 were tabled on 11 March 2025 and came into force on 28 March 2025 (the Regulations). They promote exclusive use of the Tanzanian Shilling in domestic transactions. Section 2 requires that all prices for goods and services within the country be quoted in Tanzanian Shillings, while section 2(e) provides that receiving payment in foreign currency constitutes an offence, subject to limited exemptions. The structure of the Regulations therefore establishes a general prohibition followed by narrowly defined carve-outs.
Unlike some comparable regimes, the Regulations do not distinguish between sectors, transaction values or counterparties beyond what is expressly exempted. This gives the framework a uniform appearance but increases the practical burden on businesses operating in sectors with unavoidable foreign currency exposure.
One notable omission is the absence of an express statement on territorial application. Tanzanian legislation often specifies whether it applies to Mainland Tanzania only or to the Union as a whole, including Zanzibar. The Regulations do not.
This uncertainty is not merely technical. Zanzibar has a distinct economic profile, with tourism playing a central role and foreign currency usage being more common in practice. Without clarification, businesses operating across both jurisdictions may face compliance uncertainty and inconsistent enforcement risk. The default assumption must be that Zanzibar is covered by the Regulations.
The Regulations’ Schedule sets out four exemptions:
- government membership contributions to regional institutions located in Tanzania
- transactions involving embassies and international organisations
- foreign currency loans issued by commercial banks and financial institutions
- payments for goods in duty-free shops
These exemptions are limited and lack detailed definitions or explanatory guidance.
While foreign currency loans are permitted, the Regulations do not specify how loan proceeds may be applied domestically or whether repayment must occur in local or foreign currency. Financial institutions are therefore positioned as key intermediaries of currency exposure, potentially affecting financing costs for borrowers.
Restricting routine access to foreign currency also exposes businesses to exchange rate risk, particularly where project costs are indirectly linked to foreign-currency pricing. Even moderate depreciation of the Tanzanian Shilling can materially increase costs across capital-intensive projects.
Zambia’s Bank of Zambia Currency Directives, 2025
Zambia introduced the Bank of Zambia Currency Directives, 2025 on 26 December 2025 (Directives). Like Tanzania, Zambia seeks to limit foreign currency use in domestic transactions. However, the Directives adopt a more granular, transaction-based framework. Rather than imposing a general prohibition, the Directives specify categories of transactions for which foreign currency usage is permitted, reflecting Zambia’s economic structure and reliance on foreign currency inflows.
The Directives allow foreign currency usage for specified transaction types, including:
- export-related transactions
- certain mining-related payments, including specialised equipment and inter-company mineral transactions
- defined tourism-related transactions involving non-residents
- foreign-currency-denominated or structured financial services regulated by the Bank of Zambia
These permissions are transaction-specific rather than industry-wide. Businesses must assess each transaction individually.
Zambia’s exemptions are more prescriptive. Many exemptions are designed to protect the mining sector, which remains heavily dollarised, even domestically. It is essential from the Zambian Government’s perspective that investors do not react negatively or increase costs in response to the new regulations.
Zambia’s Directives provide greater textual clarity. The categories of permitted transactions are expressly set out, reducing interpretive ambiguity. The Directives are prospective in nature and do not impose a general obligation to amend pre-existing contracts.
Infrastructure Projects and Cross-Border Transactions
Large infrastructure and concession projects sit at the intersection of domestic regulation and international finance. They often involve foreign counterparties, long-term payment structures and financing arrangements denominated in foreign currency. Neither Tanzania’s Regulations nor Zambia’s Directives provide comprehensive guidance on the treatment of such arrangements.
In Zambia, applicability depends on whether a payment constitutes a domestic transaction and falls within a permitted category. In Tanzania, contracts entered into before commencement that provide for foreign currency payments are generally required to be amended within one year, although the application of this requirement to government-adjacent counterparties is not expressly defined.
In both jurisdictions, contractual structuring, counterparty status and transaction purpose are critical compliance considerations.
Further stakeholder engagement and practical application may be necessary to mitigate the potential, negative impact of the legislation to trade flows and bankable transactions.
Public Policy Rationale
Reasserting Monetary Sovereignty
At the core of both regimes is an effort to strengthen the local currency. When foreign currency is widely used for everyday transactions, the government’s ability to steer the economy through monetary policy is reduced. If loans and wages are denominated in dollars rather than the local currency, adjustments to domestic money supply have less impact on real economic activity. Widespread foreign currency use can create a parallel financial system operating beyond domestic authorities limiting the state’s capacity to respond to economic challenges.
Some policymakers also argue that heavy reliance on foreign currency may heighten vulnerability to external volatility, although this remains the subject of international debate.
Currency Circulation and Economic Confidence
A domestic currency retains value only if it circulates actively. When foreign currency is increasingly used for high-value or routine transactions, demand for the local currency may weaken, potentially affecting confidence.
Requiring transactions to be carried out in the national currency helps anchor economic activity within the domestic monetary system. For example, if major retailers or real estate developers accepted only US dollars, local currency circulation would decline. Mandating local-currency payments keeps it in active use and supports stability, though the strength of this relationship is debated.
Currency Use and Financial Oversight
When multiple currencies are widely used, it becomes harder for authorities to monitor transactions, audit accounts and enforce financial regulations. A system dominated by the domestic currency makes financial flows easier to trace and regulate, strengthening safeguards against money laundering and terrorism financing.
By relying on a single, widely used currency, regulators can respond more effectively to suspicious activity and support transparent economic growth, particularly in countries experiencing expanding cross-border trade.
Regional Comparisons: How Other African Countries Approach Foreign Currency Use
Examining other African jurisdictions reveals a spectrum of approaches, ranging from prohibitions to market-oriented reforms and regional settlement initiatives. These examples provide context for the Tanzanian and Zambian frameworks and illustrate broader policy considerations.
Rwanda: Restricting Informal Dollar Pricing
Rwanda has introduced measures to curb unauthorised use of foreign currencies, particularly the US dollar, in local transactions. The National Bank of Rwanda has stated that quoting prices, issuing invoices or accepting payments in foreign currencies without approval may attract significant penalties.
Domestic transactions must be conducted in Rwandan francs unless a specific exemption applies, with fines escalating for repeat violations. This approach shares Tanzania’s focus on reinforcing the local currency but relies more on monetary penalties and structured compliance mechanisms than criminal sanctions or contract amendment requirements.
Ethiopia: Tight Controls Coupled with Exchange Reform
Ethiopia’s currency regime has historically been tightly controlled. Recent measures have aimed to restrict informal foreign exchange markets and consolidate foreign currency into formal channels, including enforcement against unlicensed forex trading.
At the same time, Ethiopia has pursued broader reforms such as shifting toward more market-determined rates and revising retention requirements for exporters’ proceeds. These steps seek to balance currency control with flexibility for trade and investment rather than impose a blanket prohibition on foreign currency transactions. The model illustrates a hybrid strategy in which informal markets are targeted while regulatory oversight remains strong.
Malawi: Sector-Specific Measures to Conserve Reserves
Malawi’s recent policies reflect different pressures. In 2025, the government mandated that international tourists pay for hotel accommodation in hard currencies to help conserve scarce foreign exchange reserves. Tourism businesses must obtain special licences to handle foreign exchange and comply with tighter repatriation requirements.
Malawi’s approach is targeted rather than generalised, identifying sectors where foreign currency inflow is essential and adjusting regulations accordingly. This contrasts with Tanzania’s broad prohibition and Zambia’s categorical exemptions.
Regional Settlement Initiatives: COMESA and Local Currency Clearing
Beyond national regulation, regional initiatives are emerging that seek to reduce reliance on hard currency for cross-border trade. In October 2025, the Common Market for Eastern and Southern Africa launched a Digital Retail Payments Platform enabling transactions to be settled directly in local currencies between member states.
Businesses can complete cross-border settlements without converting into a third currency, reducing costs and simplifying foreign exchange flows. While not a domestic restriction per se, the platform supports the shared policy goal of reducing dollar dependence and strengthening local currencies in trade and settlement. Kenya’s trade minister has described the initiative as potentially “transformative” for small and medium enterprises operating across borders.
Zimbabwe: Lessons from Hyperinflation and Currency Innovation
Zimbabwe’s recent monetary history offers a cautionary perspective. Following decades of hyperinflation, the country introduced a gold-backed currency, the Zimbabwe Gold (ZiG), to restore stability. Despite official adoption of the ZiG, the US dollar continues to dominate everyday transactions, including rent and school fees This highlights the confidence dimension of currency usage and suggests that legal mandates alone may not shift behaviour without credible monetary policy and stable economic fundamentals.
Business and Consumer Impact
For businesses, the effects vary significantly. Companies with cross-border supply chains or foreign parent entities face increased currency management costs and exchange risk, with capital-intensive sectors particularly sensitive.
Zambia’s transaction-based exemptions mitigate disruption by allowing foreign currency usage where commercial necessity is clear. Tanzania’s more uniform approach increases short-term adjustment costs but may deliver longer-term policy coherence.
For individuals, particularly expatriates and senior professionals paid in foreign currency, mandatory conversion can reduce purchasing power for international obligations. While these effects may be limited in aggregate, they influence talent mobility and investment sentiment.
Tanzania and Zambia have adopted different legal strategies to address the same underlying concern: excessive reliance on foreign currency in domestic economies. Both sit within a broader continental context where countries tailor currency policy to local economic conditions, institutional capacity and macroeconomic pressures.
- Rwanda focuses on compliance and fines for unauthorised foreign currency pricing.
- Ethiopia balances foreign exchange control with structural reforms of its exchange regime.
- Malawi uses sector-specific foreign exchange controls to conserve reserves.
- COMESA’s platform shows how regional cooperation can reduce reliance on hard currency settlement.
- Zimbabwe’s experience highlights the limits of legal mandates without monetary credibility.
These varied approaches illustrate that currency policy is not monolithic but tailored to specific economic and institutional contexts. They also reinforce that legal frameworks like those in Tanzania and Zambia are part of a broader societal and market adaptation process, where policy, enforcement and confidence all matter. The long-term success of either model will depend on clarity, proportional enforcement and ongoing engagement with the private sector. Currency reform is not merely a legal exercise but a behavioural one, and its effectiveness will ultimately be measured by how economic actors adapt.
