About the Bank of Tanzania
Situated in the nation’s former capital city, Dar es Salaam, the Bank of Tanzania is the central bank of the United Republic of Tanzania. Coming into power in 1966, the bank is headed by its governor, currently Professor Florens Luoga, and is responsible for issuing the Tanzanian shilling and the regulation of other financial services.
After the East African Currency Board was dissolved, Tanzania and the other nations formerly under the board’s jurisdiction replaced the authority with their own independent central banks to govern their respective currencies. The Bank of Tanzania came into being via the enactment of the Bank of Tanzania Act 1965, which has since seen many amendments to alter the responsibilities and focus of Tanzania’s central bank.
Dissolution of the East African Currency Board
Established in 1919, the East African Currency Board was brought into power to supply and oversee currencies in the British colonies of British East Africa, which was roughly made up of Kenya and Uganda. The board’s foundation came following Britain taking control of mainland Tanzania at the conclusion of World War I, with Germany relinquishing its rule over the African nation under the Treaty of Versailles. Zanzibar was added to the East African Currency Board’s governance in 1936 when the semi-autonomous island nation off of the coast of mainland Tanzania joined the currency.
In 1921, the East African Currency Board introduced the East African shilling to Kenya, Uganda, and mainland Tanzania, then known as Tanganyika, to replace the East African florin, which had itself replaced the Indian rupee for a short time due to the rupee rising in value during World War I due to it being a silver coin. When Zanzibar joined in 1936, the Zanzibari rupee was replaced by the East African shilling.
The primary objective of the East African Currency Board, for the majority of its tenure, was to ensure that East African shilling maintained par with the British shilling, achieved by backing the local currency with pound sterling securities of the United Kingdom. In 1965, Uganda, Kenya, and Tanzania were tasked with creating their own independent central banks. With relevant acts in place in the nations of former British East Africa, the East African Currency Board was dissolved in 1966, officially being replaced by central banks.
The Bank of Tanzania Act 1965
With the East African Currency Board being dissolved, the first parliament of Tanzania had to create their own central bank, the Bank of Tanzania, by enacting the Bank of Tanzania Act 1965. On June 14, 1966, the bank was inaugurated by president Mwalimu Julius Kambarage Nyerere, who was the first president of Tanzania, with Mr Edwin I. Mtei taking the role of the bank’s first governor. Initially, the Bank of Tanzania was empowered to perform all of the traditional central bank functions, including the issuing of the new Tanzanian shilling in 1966.
Less than a year since it came into power, the Bank of Tanzania was forced to reorient its policies to be in accordance with the Arusha Declaration, Tanzania’s most prominent political statement on African Socialism. In February 1967, the bank had to change from its traditional instruments of indirect monetary policies as they became inoperative under the declaration. In 1971, the Annual Finance and Credit Plan with the support of administered interest rates was introduced as the main instrument of monetary policy, and the Foreign Exchange Plan was created in order to control the use of foreign exchange; the bank was tasked with implementing the policies.
Tanzania continued to go through changes, with the villagisation programme, weaknesses found in the nation’s balance of payments, and industrialisation requiring the bank to adapt and address the developments better. So, the Bank of Tanzania Act was amended in 1978.
1978 amendments to the Bank of Tanzania Act
Increased villagisation and the weaknesses found in Tanzania’s balance of payments led to the government amending the Bank of Tanzania Act to give more control to the central bank. The 1978 amendments resulted in financial planning responsibility being stripped from the Ministry of Finance and Planning and given to the Bank of Tanzania.
With the 1978 amendments, more developmental functions were granted to the bank, leading to the bank establishing four funds: the Rural Finance Fund, the Industrial Finance Fund, the Export Credit Guarantee Fund, and the Capital and Interest Subsidy Fund. The funds offered guarantee facilities to financial institutions against their loans and advances to sectors of their economy. The changes to the statute detailed that the bank was to be responsible for the implementation and preparation of the Annual Finance and Credit Plan and the Foreign Exchange Plan as well as empowering the Bank of Tanzania to be able to inspect and supervise other financial institutions.
1995 amendments to the Bank of Tanzania Act
In 1995, Tanzania liberalised its banking services. In the same year, the nation experienced a rapid rate of inflation as well as devaluation in the Tanzanian shilling. So, the Bank of Tanzania Act was amended once again to adapt to the new circumstances. The Bank of Tanzania Act 1995 was passed to hone the bank’s primary objective to being that of establishing a monetary environment which would ensure price stability. The bank’s new mission was to attain financial and macroeconomic stability while also promoting a high and sustainable rate of economic growth.
The objectives of the Bank of Tanzania were further clarified in the subsequent, and latest, set of amendments in 2006.
2006 amendments to the Bank of Tanzania Act
The standing statute of the Bank of Tanzania Act 2006 sought further clarification to the goals of the Bank of Tanzania as detailed in the 1995 amended act. The exact goal of the legislation was to provide for a more responsive regulatory role of the bank in relation to the regulation and supervision of financial institutions and the implementation and formulation of its monetary policy. Within the monetary policy, the Bank of Tanzania is to be responsible for the exchange rate policy and the issuing of currency. The bank is also in charge of the nation’s holding, managing, and dealing of gold and foreign exchange reserves.
2008 External Payment Arrears scandal
The Bank of Tanzania has been mired in controversy since it was discovered, in 2008, that roughly 133 billion Tanzanian shillings had been paid to locally registered companies, many of which were fictitious. An investigation into the reports led to the president, Jakaya Kikwete, sacking the then-governor Doctor Daudi T.S. Ballali, who had been the chairman of the bank since 1998.