Use of Local Currency for Onshore Transactions in Africa - A Transactional, Public Policy and Comparative Analysis

Governments across Africa are increasingly revisiting how local currency is used within their domestic economies. This trend is not occurring in isolation.

1. Introduction

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 particularly 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.

2. Tanzania's Regulations on the Use of Foreign Currency, 2025

2.1. Legislative Background and Core Prohibition

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). The Regulations are framed as a broad measure to promote exclusive use of the Tanzanian Shilling (TZS) in domestic transactions.

Section 2 requires that all prices for goods and services within the country be quoted in Tanzanian Shillings. Section 2(e) further provides that a person commits an offence if they receive payment for goods or services in foreign currency within the country (domestic transactions), 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.

2.2 Jurisdictional Scope and Zanzibar

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 do so.

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 express 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.

2.3 Statutory Exemptions

The Schedule to the Regulations 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 in number and are not accompanied by detailed definitions or explanatory guidance.

2.4 Foreign Currency Loans and Exchange Risk

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. This places financial institutions in a central role as intermediaries of currency exposure and may affect the profile of financing costs for borrowers.

Restricting routine access to foreign currency for domestic transactions 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.

3. Zambia's Bank of Zambia Currency Directives, 2025

3.1. Structure and Regulatory Approach

Zambia introduced the Bank of Zambia Currency Directives, 2025 on 26 December 2025 (Directives). Like Tanzania, Zambia seeks to limit the use of foreign currency in domestic transactions. However, the Directives adopt a more granular, transaction-based framework.

Rather than imposing a general prohibition subject to limited exemptions, the Directives specify categories of transactions for which foreign currency usage is permitted. This approach reflects Zambia’s economic structure and reliance on foreign currency inflows.

3.2. Permitted Foreign Currency Transactions

The Directives allow foreign currency usage for specified transaction types, including:

• export-related transactions
• certain mining-related payments, including for 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 against the criteria set out in the Directives.

Zambia has been far more prescriptive in terms of its exemptions.  It is clear that the majority are designed to protect the mining sector from exposure.  This sector is heavily dollarized, even domestically so it is essential, from the Zambian Government’s point of view that the investor does not react negatively or increased costs due to the emergence of the new regulations.

3.3. Legal Certainty and Prospective Application

It is clear that 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.

4. Infrastructure Projects and Cross-Border Transactions

Large infrastructure and concession projects sit at the intersection of domestic regulation and international finance. These projects 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 whether it 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 or state-linked counterparties is not expressly defined.

In both jurisdictions, contractual structuring, counterparty status and transaction purpose are critical compliance considerations.

It is clear that further stakeholder engagement and practical application may need to take place in both jurisdictions in order to mitigate the potential, negative impact of the legislation to trade flows and bankable transactions.

5. Public Policy Rationale

5.1 Reasserting Monetary Sovereignty

At the core of both Tanzania and Zambia’s 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, like setting interest rates or controlling inflation, is limited. For example, if most loans and wages are paid in dollars rather than the local currency, the central bank can adjust its domestic money supply without much effect on real economic activity. Widespread foreign currency use effectively creates a parallel financial system that operates beyond the reach of domestic authorities, reducing the impact of policy measures and limiting the state’s capacity to respond to economic challenges.

There is a public policy argument that the local currency is further prone to volatility and devaluation in international markets, however this perspective is the subject of intense international debate. 

5.2 Currency Circulation and Economic Confidence

A domestic currency only holds its value and relevance if it continues to circulate actively within the economy. When people increasingly use foreign currency for everyday or high‑value transactions, the local currency moves less frequently, which can reduce its economic “momentum” and put downward pressure on its value. This is a theory.   This often leads to falling confidence, as businesses and consumers start to view the foreign currency as more reliable. By requiring transactions to be carried out in the national currency, governments help ensure that economic activity remains anchored in the domestic monetary system. For example, if major retailers or real estate developers begin accepting only US dollars, shillings would circulate less, weakening demand for the local currency. Mandating local‑currency payments keeps the currency in active use and supports overall stability.  Again, a theory.

5.3 Currency Use and Financial Oversight

When multiple currencies are widely used within a country, it becomes harder for authorities to monitor transactions, audit accounts, and enforce financial regulations. For example, if a business accepts both domestic and foreign currency, tracking its revenues, taxes, and compliance with anti-money laundering rules becomes more complex. In contrast, a system where the domestic currency dominates makes financial flows easier to trace and regulate. This strengthens safeguards against money laundering and terrorism financing, which is especially important in countries experiencing growing cross-border trade. By relying on a single, widely used currency, regulators can respond more effectively to suspicious activity and ensure that economic growth is both transparent and secure.

6. Regional Comparisons: How Other African Countries Approach Foreign Currency Use

Examining how other African jurisdictions are navigating currency use highlights a spectrum of approaches—ranging from outright prohibitions to market-oriented reforms and regional settlement initiatives. These examples provide useful context for the Tanzanian and Zambian frameworks and illustrate the broader policy considerations at play.

6.1 Rwanda: Restricting Informal Dollar Pricing

Rwanda has introduced regulatory measures to curb unauthorised use of foreign currencies, particularly the U.S. dollar, in local transactions. The National Bank of Rwanda (NBR) has stated that businesses and individuals may be subject to significant penalties if they quote prices, issue invoices or accept payments in foreign currencies without official approval. Under the regime, domestic transactions must be conducted in Rwandan francs unless a specific exemption applies, and violations attract fines that increase on repeat occurrences. 

This approach shares with Tanzania a focus on reinforcing the local currency, but differs in enforcement mechanisms: Rwanda’s policy establishes monetary penalties and a clear compliance framework for pricing and invoicing, rather than criminal sanctions or contract amendment requirements.

6.2 Ethiopia: Tight Controls Coupled with Exchange Reform

Ethiopia’s currency regime has historically been among the most tightly controlled on the continent. Measures introduced by the National Bank of Ethiopia in recent years have aimed to restrict informal foreign exchange markets and consolidate foreign currency into formal channels, including through warnings and enforcement actions against unlicensed forex trading. 

At the same time, Ethiopia has undertaken broader foreign exchange reforms, including shifting toward more market-determined rates and revising retention and surrender requirements for exporters’ foreign exchange proceeds. These reforms are intended to balance currency control with increased flexibility for trade and investment, rather than imposing a blanket prohibition on foreign currency transactions. 

Unlike the near-outright domestic transaction bans seen in Tanzania, Ethiopia’s model illustrates a hybrid strategy where informal markets are targeted and foreign exchange policy is modernised, while still maintaining strict regulatory oversight of currency flows.

6.3 Malawi: Sector-Specific Measures to Conserve Reserves

Malawi’s recent policy choices reflect a different set of pressures. In late 2025, the government mandated that international tourists pay for hotel accommodation in hard currencies to help conserve scarce foreign exchange reserves. These measures require tourism businesses to obtain special licences to handle foreign exchange directly through the central bank and also tighten repatriation and surrender requirements for exporters. 

Malawi’s approach is targeted rather than generalised: rather than outlawing domestic foreign currency use, it identifies specific sectors where foreign currency inflow is essential to reserve building and adjusts regulations accordingly. This contrasts with both Tanzania’s broad domestic prohibition and Zambia’s categorical exemptions, showing how policy can be calibrated to address balance-of-payments pressures without impeding everyday local transactions.

6.4 Regional Settlement Initiatives: COMESA and Local Currency Clearing

Beyond national regulation, regional initiatives are emerging that seek to reduce reliance on hard currency (such as the U.S. dollar) for cross-border trade. In October 2025, the Common Market for Eastern and Southern Africa (COMESA) launched a Digital Retail Payments Platform enabling transactions to be settled directly in local currencies between member states. 

Under this platform, businesses can complete cross-border settlements without converting first into a third currency, reducing transaction costs and simplifying foreign exchange flows. While not a domestic currency usage restriction per se, the platform supports the same underlying public policy goal shared by Tanzania and Zambia: reducing dollar dependence and strengthening the role of 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. 

6.5 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, or ZiG) in an effort to replace the collapsed Zimbabwe dollar and restore monetary stability. 

Despite official adoption of the ZiG, the U.S. dollar continues to dominate everyday transactions, which is still used for rent, school fees and basic goods. This highlights the deep confidence dimension of currency usage and how legal mandates alone may not shift behaviour without parallel trust-building measures. 

This case underscores the point that even formal legal restrictions on currency use must be supported by credible monetary policy and stable economic fundamentals to achieve the intended behavioural change.

7. Business and Consumer Impact

7.1 Impact on Businesses

For businesses, the effects of these reforms vary significantly. Companies with cross-border supply chains or foreign parent entities face increased currency management costs and exchange risk. Capital-intensive sectors are 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.

7.2 Impact on Individuals

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.

8. Conclusion

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 market and 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 Tanzania’s or Zambia’s 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.