The legal regulation of central banking in Tanzania: problems and prospects.

This study deals with the Legal Regulation of Central Banking in Tanzania. We make an analysis of the law establishing the Bank and its efficacy in instilling financial and monetary stability in the country. We therefore examine the various powers which are vested in the BOT as an apex financial institution. The BOT has legal powers of control, supervision regulation and coordination over banks and financial institution. It will be recalled, however, that prior to the enactment of the BOT Act the law which regulated banking in this country was the Banking Ordinance, Cap. 430 of the Laws of Tanganyika. Under this law it was the Registrar who was responsible for the administration of the Ordinance. The Ordinance vested in him regulatory powers over all banks. He was also the licensing authority. He could, in this capacity, revoke a license of any commercial bank where he deemed it necessary to do so. However, the Ordinance fell out of use at the advent of the promulgation of the Arusha declaration in 1967. All foreign banks operating in Tanzania were nationalised and in its place was established the National Bank of Commerce (NBC). On the other hand, a number of financial institutions were established. These were mostly statutory bodies whose establishing statutes also regulated their activities. These were such as the Tanzania Investment Bank (TIB), the Tanzania Housing Bank (THB) etc. A1 of these statutes, ousted the jurisdiction of the Banking Ordinance over them. In the private sector the Companies Ordinance continued to be the basic instrument of regulation of the affairs of private financial institutions (e.g. the Tanzania Development Finance Company Ltd. It would seem that when the BOT was established in 1965 with some of its functions being the regulation of banking and credit, it was also meant to take over the function of administering the Banking Ordinance. But this was not stated with the necessary clarity. This situation culminated into the erosion over BOT's powers of control, regulation, supervision and coordination over other banks and financial institution. For all practical purposes, the Ordinance remained redundant until it was repealed in 1991. But the ills which the financial and banking sector suffered have not been cured to this day. Hence the essentials of Central Bank supervision over commercial banks and financial institution need critical examination. Furthermore, it is not in dispute that Central Banks are subject to some degrees of influence from the government of the day and particularly the treasury. The Government overly rely on the advice given by the Central Bank in the formulation of its fiscal and monetary policies. On the other hand, Central Banks strive to achieve real targeted objectives and particularly the stability of the currency and fighting inflation. Needless to point out, conflict of interest would arise between the government authorities whose political endeavours should be accomplished at any cost on the one hand and the Central Bank whose interest is building up a stable monetary and financial system. As a consequence the degree of central banking independence becomes an important institutional determinant of policy outcomes and in particular the fight against inflation/price stability. This study will largely be carried out through library research and field work. On this front, the University of Dar es Salaam and particularly the Law Collection and East African sections will be very useful. The Bank of Tanzania library will also be a useful resource of materials on central banking generally and the law of central banking in particular. We expect to also conduct interviews with experienced central bankers so that we are unable to get first hand views on this topical subject. The study is contained in six chapters. In chapter one we lay out the theoretical genesis of central banking in Tanzania. We explain briefly about the preceded the BOT as a quasi-Central Bank for the East African states. Chapter two deals with the legal foundations of the BOT as the Central Bank of the land. This chapter looks at the roles and functions of the BOT as a tool for control of the domestic Monetary System, the function of the BOT as banker to the government and other banks will also be examined. Chapter three makes an evaluation of the role of the BOT in the administration of exchange. We also examine the role of the BOT in international contracts and transactions and the relationship between the BOT and multilateral institutions. The duty of the BOT as controller of the country's foreign assets is also looked into. Chapter four deals with the supervisory and regulatory powers of the BOT. The practical aspects of roles and functions of the BOT in this regard, are also evaluated. Chapter five deals with the Legal and Institutional framework of the BOT's independence. Finally, we make our conclusion and recommendations in chapter six.