Rising Transaction Values and Growing USD Dependence

From 2020 to 2024, Tanzania’s payment system saw significant shifts in transaction patterns. TISS transactions in Tanzania Shillings (TZS) grew in value by 68.6% (from TZS 186,369 billion in 2020 to TZS 314,233 billion in 2024) despite a 2.92% drop in volume in 2024. Meanwhile, USD-denominated transactions surged—the volume increased by 204%, from 227,894 in 2020 to 692,271 in 2024, while the value rose by 108%, from TZS 16,440 million to TZS 34,215 million. These trends indicate a shift towards high-value transactions in TZS and a growing preference for USD in financial settlements, reflecting deeper integration with global trade and potential shifts in monetary dynamics.

The trends in both Tanzania Shilling (TZS) and United States Dollar (USD) transactions reveal important insights about Tanzania’s financial system, monetary policy, and economic activities.

1. TZS Transactions: High Value Growth Despite Volume Decline

• The volume of transactions (number of transactions) peaked in 2023 at 4.11 million but dropped slightly in 2024 to 3.98 million (a 2.92% decrease).
• However, the value of transactions continued to grow significantly, reaching TZS 314,233 billion in 2024, a 22.87% increase from 2023.

What It Means:

✅ Higher transaction values but fewer transactions indicate a shift toward larger-value transactions. This suggests:

• Increased high-value economic activities, such as major government, corporate, and infrastructure payments.
• Inflationary effects or currency depreciation, where more shillings are needed for transactions.
• Financial consolidation—fewer but higher-value transactions may indicate improved digital banking efficiency or businesses reducing transaction frequency.

2. USD Transactions: Strong and Consistent Growth

• The volume of USD transactions has increased every year, reaching 692,271 transactions in 2024, a 27.03% increase from 2023.
• The value of USD transactions also grew steadily, reaching TZS 34,215 million in 2024, a 24.48% increase from 2023.

What It Means:

✅ Increased reliance on USD transactions suggests:

• Greater use of USD for trade and financial settlements, possibly due to exchange rate volatility or confidence in the dollar.
• More foreign investment and international transactions, reflecting economic globalization and foreign trade expansion.
• Hedging against Tanzania Shilling fluctuations, as businesses might prefer USD for stability.

3. TZS vs. USD Transactions: A Shift Toward Dollarization?

• While TZS transactions showed mixed trends (declining volume but growing value), USD transactions consistently increased in both volume and value.
• This suggests a partial shift toward dollarization in Tanzania's financial system, where businesses and individuals are increasing their reliance on the USD.

Implications for Tanzania's Economy:

• Monetary Policy Challenges: If more transactions shift to USD, the Bank of Tanzania (BoT) may have less control over money supply and inflation.
• Foreign Exchange Pressure: Higher USD demand could put pressure on Tanzania’s foreign exchange reserves.
• Investment Confidence: A rising USD transaction trend could indicate more foreign investor participation, boosting the economy.

Final Thought

The trends suggest that while local currency transactions remain dominant, foreign currency transactions are growing faster. This could indicate:

• A strengthening corporate and trade sector using more USD.
• Macroeconomic adjustments due to inflation, exchange rate policies, or economic shifts.

TISS (Tanzania Interbank Settlement System) transactions from 2020 to 2024:

TISS Transactions Denominated in Tanzania Shillings (TZS)

1. Transaction Volume (Million)
   • 2020: 2.48 million
   • 2021: 3.26 million (31.37% increase)
   • 2022: 3.83 million (17.68% increase)
   • 2023: 4.11 million (7.28% increase)
   • 2024: 3.98 million (2.92% decrease)

Trend: A steady increase in volume from 2020 to 2023, but a slight decline in 2024.

2. Transaction Value (TZS billion)
   • 2020: 186,369 billion
   • 2021: 174,309 billion (6.47% decrease)
   • 2022: 207,503 billion (19.04% increase)
   • 2023: 256,028 billion (23.39% increase)
   • 2024: 314,233 billion (22.87% increase)

Trend: Despite a drop in 2021, the value of transactions has shown consistent growth from 2022 to 2024.

TISS Transactions Denominated in United States Dollars (USD)

1. Transaction Volume
   • 2020: 227,894
   • 2021: 289,979 (27.24% increase)
   • 2022: 415,752 (43.37% increase)
   • 2023: 545,161 (31.13% increase)
   • 2024: 692,271 (27.03% increase)

Trend: Continuous growth in transaction volume every year, indicating increased dollar transactions.

2. Transaction Value (TZS million)
   • 2020: 16,440
   • 2021: 25,210 (29.43% increase)
   • 2022: 25,210 (18.48% increase)
   • 2023: 27,502 (9.09% increase)
   • 2024: 34,215 (24.48% increase)

Trend: The value of USD transactions has steadily increased each year, with the highest growth rate in 2024.

Key Insights:

• TZS transactions experienced a drop in volume in 2024 but saw a significant increase in value.
• USD transactions have shown consistent growth in both volume and value, highlighting the increasing role of USD-based transactions in Tanzania’s financial system.