Subsidiary Functions of the Bank
Apart from the primary function, the Bank of Tanzania has important subsidiary central banking functions.
1. The Bank of Issue
The Bank has the sole right to issue notes and coins in Tanzania for the purpose of directly influencing the amount of currency in circulation outside banks, thereby providing the economy with sufficient, but if possible, non-inflationary liquidity.
2. The Bankers’ Bank
This function includes the acceptance of deposits to act as prudential reserves for these banks (i.e., the Minimum Reserves), the willingness to discount commercial and government paper, and the commitment to act as lender of last resort to these banks. It also involves the provision of central clearance facilities for interbank transactions.
3. The Governments’ Bank
The Bank is the banker and the fiscal agent for the Governments, and may be the depository of the Governments. The Bank may make temporary advances to the Governments through its overdraft facility, subject to repayment within 180 days and through purchases (direct or rediscounting) of treasury bills issued by the Governments, which mature not later than 12 months from the date of issue. The total amount outstanding at any time of advances made in this manner shall not exceed one eighth of the average budgeted revenues (average of the actual collected revenues of the previous three fiscal years, excluding loans, grants, other forms of economic aid, and all borrowing, whether short-or long-term) of each Government.
4. The Advisor to the Governments
The Bank may advise the Governments on any matter relating to its functions, powers, and duties. The Bank may also be requested to advise the Governments on any matter related to its functions, powers, duties, the credit conditions in Tanzania, or any proposal, measures, and transactions relating thereto.
5. The Guardian of the Country’s International Reserves
The Bank is the depository of the official external assets of Tanzania, including gold and foreign currency reserves. Guarding international reserves may imply the determination of buying and selling rates of gold and foreign exchange in foreign exchange markets and/or the buying and selling of reserve assets for the purpose of sustaining the national currency’s external value. It also includes reserve management, with a view to the prudential investment of the funds, with due regard to safety, liquidity, and profitability, and external debt management.
6. Supervision of Banks and Financial Institutions
In general, this activity involves ensuring that commercial banks and other financial institutions conduct their business on a sound prudential basis and according to the various laws and regulations in force. It includes the supervision of banking conduct and the licensing of financial institutions.
According to the Banking and Financial Institutions Act of 1991, and the new BOT Act, the main responsibilities of the Bank of Tanzania are:
a) implementation of prudential controls concerning capital adequacy, liquidity, concentration of credit and risk diversification, asset classification and provisioning, and prohibited activities;
b) licensing of banks and financial institutions;
c) facilitation and monitoring of a Deposit Insurance Fund, the purpose of which is the protection of small depositors; and
d) modification and monitoring of the Minimum Reserve Requirements and foreign exchange exposure.
7. Promotion of Financial Development
This refers to the establishment of an effective financial system, with the aid of which financial transactions necessary for the smooth functioning of the economy can be carried out with a minimum amount of cost and time involved. In this connection, the Bank has to be a facilitator of advanced clearing and transfer systems. It also implies that the necessary banking services, as, for example, deposit facilities and loan facilities, are made available. Included here is also the availability of certain specialised institutions, which could be represented, for example, by an industrial development bank and/or an agricultural development bank and micro-finance institutions, and the facilitation of a money market, a capital market, and a foreign exchange market.