The impacts of weakening local currency on the rise of dollarization in Tanzania:a case of Ilala Commercial Based District (CBD), in Dar es Salaam.

The main objective of this study was to investigate the Impacts of Weakening Local Currency on the Rise of Dollarization in Tanzania. The study was guided by the following objectives: to examine the factors that influence choices for a Currency as a Store of Value, to find out the extent to which Consumer Services have been Dollarized, to investigate the role of Dollarization in financial and monetary inclusion.The data analysis applications were applied and the conceptual model was used in order to assess the effects of variables. Selected samples have been used in predetermined set of questions. The study used simple random sampling whereas a sample of 300 respondents from Private Businesses and the general Public in Ilala CBD Municipality (business areas in Kariakoo, Mnazi Mmoja, Kisutu and Central Posta), in Dar es Salaam were selected. The findings reveal that Rise of Dollarization in Tanzania is highly influenced by the weak and rapidly depreciating Tanzanian shilling which has been losing its ability to function as a store of value, a unit of account, and a means of exchange. Thus the U.S. Dollar predominantly among foreign currency in Tanzania is perceived as stable and replaces the Shilling in business dealings. The study recommends that the government imposes capital controls, block private debtors' access to foreign currency, and prevent them from servicing their foreign debt obligations. Conversely, devaluation reduces default risk by improving the domestic economy and the fiscal position. Devaluations that initially slow the economy is likely to improve longer-term prospects and thus reduce the risk of sovereign default.