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Tanzanian Central Bank Says Forex Restrictions Intended to 'Safeguard the Stability of the Financial System'

The Tanzanian central bank said on May 31 that foreign currency dealers are required to trade all transactions that exceed $1,000,000 within “interbank foreign exchange market prevailing quoted prices.” According to the Bank of Tanzania, the latest directives are intended to “foster macroeconomic stability and safeguard the stability of the financial system.”

Forex Dealers Must Only Trade With Authorized International Brokers

The Tanzanian central bank has reminded forex dealers that all transactions exceeding USD 1,000,000.00 per transaction must be “traded within the interbank foreign exchange market prevailing quoted prices.” The central bank also reminded foreign currency dealers that they should only trade with licensed international foreign currency brokers.

In a statement signed by the institution’s governor, Emmanuel M. Tutuba, the Bank of Tanzania (BOT) said it made the decision to issue the reminder after reviewing the operations of the foreign exchange market.

“As part of the undertaking of its statutory mandate, the Bank of Tanzania has reviewed the foreign exchange market operations in consideration of the current market development,” the BOT explained.

Safeguarding the Stability of the Financial System

As reported by Bloomberg, Tanzania has seen its foreign exchange reserves drop to $4.9 billion at the end of April. This figure is approximately $600 million less than the $5.5 billion recorded a year earlier. According to the central bank, the latest directives, which became effective on June 1, are intended to “foster macroeconomic stability and safeguard the stability of the financial system.”

Meanwhile, in addition to requiring dealers to trade with authorized brokers, the BOT reminded them to “strictly observe the procedures for know your customer (KYC) in their undertakings.” The central bank also directed dealers to retain a limit of foreign exchange net open position of 10% of core capital. The BOT said any infringement will “attract penal sanctions as provided for in the Foreign Exchange Act, 1992.”

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