The Bank of Tanzania’s Mission
As the nation’s central bank, the Bank of Tanzania’s primary mission was to issue the Tanzanian shilling. But since the bank’s inception in 1966, following the enactment of the Bank of Tanzania Act in 1965, the legislation has been amended several times so that the establishment can better serve the nation in the changing times. Amendments in 1978, 1995, and 2006 have changed the mission of the Bank of Tanzania from its initial focus, but as of 2019, the act has seen minimal changes, enabling the Bank of Tanzania to work towards the same goal as it stated in the 1995 amended act, which were further reinforced by the 2006 amendments.
The primary objective of the Bank of Tanzania
In the 2006 Bank of Tanzania Act, the government set out to rectify the errors of former renditions of the legislation. Through experience, lawmakers decided that a central bank that had too many objectives would find itself not doing any of them very well. Having seen the Bank of Tanzania fail to achieve its multiple-policy objectives, as set by the early versions of the statute, the newest amendments set out to make the central bank more driven with a single-policy objective.
In the Bank of Tanzania Act 1995, and through reinforcement via the 2006 amendments, the mission of Tanzania’s central bank switched to the sole focus of achieving price stability. This was decided after examining the increasing evidence of the negative effects of inflation around the world and in Tanzania. The growing consensus around the world dictated that creating a monetary policy which pursued price stability in the long term would be a central bank’s most significant contribution towards its nation achieving economic prosperity.
As stated by Section 7(1) of the Bank of Tanzania Act 2006:
The primary objective of the [Bank of Tanzania] shall be to formulate, define, and implement monetary policy directed to the economic objective of maintaining domestic price stability conducive to a balanced and sustainable growth of the national economy.
Evidence dictates that inflation comes by way of the excessive creation of money, so, in order to avoid inflation, the primary responsibility of the Bank of Tanzania is to establish monetary conditions encouraging price stability over time. As central banks influence the money supply process, they can seek to achieve price stability by regulating the quantity of money in circulation as well as the amount of credit that’s supplied to the economy: in other words, the central bank needs to conduct monetary policy.
For the Bank of Tanzania to accomplish price stability through monetary policy, the bank must first establish a steady rate of increase in the money supply as well as a rate of increase in domestic bank credit expansion that is consistent with the money supply objectives but without unnecessary demand pressures on production resources. It is also noted that interest rates established by the central bank will need to exceed the level of the rate of inflation while also being realistic.
The central bank must also keep enough foreign reserves to enable it to act upon reversible short-term fluctuations on the foreign exchange market as well as meet external obligations, unexpected foreign exchange requirements, and import requirements. As for the Tanzanian shilling, the Bank of Tanzania was also tasked with maintaining a relatively stable exchange rate as part of its mission. Finally, it’s integral for the central bank to protect the development of well-managed banking institutions and encourage effective financial markets for it to reach its goal.
Having realised the serious nature of inflammation in Tanzania and being backed by legislation, the Bank of Tanzania has honed all of its efforts towards achieving price stability, declaring inflammation as the nation’s top economic enemy.