India, Tanzania discuss settling trade transactions in

Tanzania and India are advancing discussions to settle bilateral trade transactions in their local currencies—the Tanzanian Shilling (TZS) and Indian Rupee (INR)—rather than the US dollar. This move signals a broader regional shift toward de-dollarization and financial sovereignty that could fundamentally alter how East Africa manages currency exposure and trade financing.

## Why are Tanzania and India moving away from dollar settlements?

The primary driver is currency volatility and forex scarcity. Tanzania's shilling has depreciated roughly 8% annually against the USD over the past three years, inflating import costs for Indian machinery, pharmaceuticals, and textiles. By settling in local currencies, both nations reduce exposure to dollar strength and eliminate unnecessary forex conversion fees—savings that can be passed to businesses and consumers. India, Africa's largest bilateral trading partner outside of China, has already negotiated similar arrangements with Kenya, Nigeria, and South Africa, positioning the rupee as an alternative settlement currency across the continent.

Bilateral trade between Tanzania and India exceeded $2.8 billion in 2023, with Tanzania importing machinery, chemicals, and vehicles while exporting cotton, cashews, and minerals. Moving to TZS-INR settlements could reduce transaction costs by 1.5–2.5%, a meaningful margin for price-sensitive sectors like agriculture and manufacturing.

## What are the market implications for Tanzania?

The shift strengthens the shilling's utility domestically and regionally. If formalized through a bilateral currency swap arrangement—as India has done with other African central banks—the Bank of Tanzania (BoT) gains a stable source of rupee liquidity for import financing without depleting hard currency reserves. This is critical: Tanzania's forex reserves stood at $4.9 billion in December 2024, sufficient for only 3.8 months of imports, making dollar conservation strategically vital.

For investors, local currency settlements reduce hedging costs on Tanzania-India trade corridors. Tanzanian exporters shipping cashews or minerals to India face lower currency risk; Indian investors in Tanzanian manufacturing (textile mills, food processing) can repatriate profits with less forex friction. However, the shilling's structural weakness—driven by persistent current account deficits—means rupee accumulation could itself become a risk if Indian demand for TZS-denominated assets weakens.

The arrangement also strengthens Tanzania's bargaining position in the East African Community (EAC), signaling financial maturity and partnership depth with major global economies beyond traditional Western ties.

## What could derail this deal?

Central bank capacity is the main constraint. The BoT must establish a settlement infrastructure (clearing systems, forex corridors) and manage rupee reserves efficiently. Additionally, if India-Tanzania trade imbalances widen—with Tanzania importing far more than it exports—rupee accumulation becomes a liability rather than an asset. Both economies must ensure balanced bilateral commerce or establish credit lines to manage settlement surpluses.

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