Why the use of Sh10,000 notes has risen and what it means

Dar es Salaam. The circulation of Sh10,000 notes in Tanzania has risen by 75 percent in the past five years.

According to Bank of Tanzania (BoT) data, the total value of Sh10,000 notes in circulation was Sh3.6 trillion in 2018 and by the end of December 2023 this had risen to Sh6.3 trillion.

The data is indicated in the central bank’s Statistical Bulletin for the Quarter Ending December 2023.

BoT governor Emmanuel Tutuba told Mwananchi that the increase shows that Tanzania’s economy is opening up and businesses are thriving.

This, he said, was because the government has created a conducive environment for businesses to operate freely and make profits.

“Due to this, money circulation has increased. When you have large circulation of cash in an economy where people use cash, that’s when you see these issues of increased circulation of notes,” he said.

According to him, inflation is not an influencing factor as Tanzania’s inflation rate has remained relatively low at around three percent.

“The depreciation of our currency is also not a reason because if you look at the past three years, the depreciation of the shilling was around one percent per year. This year, it is still around eight percent, which is relatively stable if you consider the dollar shortage, the Ukraine war and the effects of Covid-19,” Mr Tutuba said.

But some analysts differed with this position on the grounds that an increase in the use of high-denomination notes points to a decline in the value of currency due to inflation.

“This means two things. First, our currency’s purchasing power is decreasing compared to the dollar because our currency’s ability to buy goods has decreased. Second, it means there is inflation, which may have been caused by various factors such as the Russia-Ukraine war because there are goods we were relying on from those countries, such as wheat,” said Prof Humphrey Moshi of the University of Dar es Salaam.

He said the country should focus on agriculture to increase production and the use of Tanzania’s currency in international trade.

“We need to focus on agriculture to increase production. If you look at it, our agricultural sector’s growth rate is low. But also, we need to start using our currency in international trade, as we buy goods,” Prof Moshi said.

His remarks were echoed by another economist, Prof Abel Kinyondo, who said the increase in these notes in circulation is an indication of the devaluation of our currency.

“When you see people using the highest denomination in their purchases, you know the value of that currency has decreased, and this is caused by inflation. It also means you are using more money to buy goods.”

Prof Kinyondo advised increasing production to increase exports of our goods.

“What we need to do is ensure our currency has value, and the easiest way to do that is to increase production to reduce inflation.”

In addition to the increase in the circulation of the Sh10,000 shilling notes, the circulation of the Sh2,000 shilling note has also increased from Sh177.2 million shillings in December 2018 to Sh230.8 million shillings in December 2023, an increase of 15 percent.

The value of the Sh5,000 note decreased from Sh732.2 million in December 2018 to Sh713.7 million in 2023, representing a decline of 2.5 percent.