leading to the arrest of several suspects in a major swoop on black market currency trading and money laundering activities in the country.
The BoT Gorvenor, Prof Florens Luoga, said in a statement that authorities have uncovered a "vast and powerful network" engaged in illegal currency trading and money laundering.
"A detailed investigation over the past six months uncovered an increase in illegal foreign exchange bureaus and money laundering activities being conducted through foreign exchange bureaus," Prof Luoga said.
The BoT governor said the central bank was assisted in the crackdown on illegal foreign exchange bureaus by various units of Tanzania's defence and security forces, including the military, in order to conduct surprise inspections on all foreign exchange bureaus at once.
He explained that the army was called in because many members of the Tanzania Police Force were deployed in another operation to supervise national examinations in secondary schools across the country.
The presence of soldiers outside foreign exchange bureaus in the northern town of Arusha, a tourism and gemstone trading hub, on Monday unnerved residents of the city and stirred debate on social media platforms.
Luoga announced that several suspects have been arrested as a result of the crackdown, saying criminal charges would be filed against wrongdoers.
He said the BoT suspended issuance of new licenses for foreign exchange bureaus over the past three months in order to conduct thorough inspections on existing foreign exchange retail bureaus.
"The (central) Bank of Tanzania is carrying out surprise inspections of foreign exchange bureaus and unlicensed money shops. All those found to be operating illegally will have their licences revoked," he said.
Tanzania currently has 110 licensed foreign currency bureaus located in various parts of the country, according to data on the BoT's website.
Some opposition leaders have accused the government of increasingly militarising the economy following its decision to deploy the army earlier this month to collect and secure all the country's cashew nut harvests after rejecting low prices offered by private buyers for the commodity.
"I am deeply shocked by the deployment of soldiers at all foreign exchange bureaus in Arusha ... the military should only be deployed in special emergencies, such as defence of the constitution and the country's borders. I'm not sure if guarding foreign exchange bureaus is a special emergency," Zitto Kabwe, the leader of the opposition ACT-Wazalendo party, said via Twitter.
'A cocktail of reasons'
President John Magufuli ordered the BoT last year not to bail out problem banks and tighten controls on the movement of hard currency in a bid to tackle financial crimes and protect the local shilling currency.
A spike in non-performing loans (NPLs) over the past two years has hit local bank profits and choked off new lending to the private sector, undermining economic growth in the country.
The central bank revoked the licenses of five “critically undercapitalised” community banks in January to safeguard the sector’s stability.
But foreign exchange traders told the Financial Times that a booming foreign exchange black market was just one factor in a cocktail of reasons that have led to the sharp depreciation of the shilling over the past year.
After hitting all-time lows on Monday this week trading at 2,305/2,310 levels against the US dollar, analysts said the local currency could likely continue to depreciate against the greenback in the coming weeks and months.
"Things look really bad, all I can say is that the Tanzanian shilling is in serious trouble," a foreign exchange trader at a leading commercial bank in Dar es Salaam told the Financial Times on condition of not being named because he was not authorised to speak on behalf of the bank.
"Things started to unravel for the shilling way back in 2017 with the far-reaching mining sector reforms that rocked the mining sector and led to the banning of exports of gold and copper concentrates by two mines owned by the country's biggest gold producer, Acacia Mining."
Gold exports are the second biggest foreign exchange earners in Tanzania after the tourism sector.
"Things quickly escalated towards the end of this year with the abduction of business tycoon Mohamed Dewji, which shook the confidence of the business community and affected the flow of US dollars into the economy," he said.
"Another factor that hurt the shilling is the recent suspension of aid or threats of aid freeze from some of Tanzania's development partners, including the World Bank and the European Union. Foreign aid and loans is an important source of foreign exchange in Tanzania, so any suspension of aid will affect the shilling."
The government's decision to cancel all cashew nut auctions and order the military to secure all harvests of the crops is seen as another factor that caused the further depreciation of the shilling.
"From October all the way to February, cashew nut exports are traditionally one of the biggest sources of foreign exchange earnings in Tanzania. The disruption of the cashew nut trading business means that some clients have started making panic buys of dollars because they are anticipating shortages of dollars due to suspension of cashew nut trading by private exporters," said the forex trader.
According to the latest monthly economic review (MER) by the central bank, the value of transactions in the inter-bank foreign exchange market (IFEM) decreased to $81.4 million in September this year from $96.9 million in August.
"On an annual basis, the shilling depreciated to exchange at an average of TZS 2,287.9 per US dollar in September 2018 from TZS 2,247.9 per US dollar in September 2017," said the BoT report.
Some analysts said the strengthening of the US dollar against all major currencies had also played a part in the depreciation of the shilling.
"But factors such as the decline of foreign exchange earnings from gold exports, suspension of financial assistance to Tanzania and disruptions in the cashew nut trade are among the biggest contributors to the weakening of the shilling," said one currency trader in Dar es Salaam.
The World Bank announced this week that it has delayed the release of a $300 million loan to Tanzania due to disagreement with the government's policy of expelling pregnant girls from public schools.
Some donor countries, including the European Union, said they were reviewing their development assistance to Tanzania due to a controversial crackdown of homosexuals announced recently by Dar es Salaam Regional Commissioner Paul Makonda.