The Effect of Digital Currency on Monetary Policy in Tanzania: An Empirical Investigation

Abstract

This study investigates the effects of digital currency on monetary policy in Tanzania., The main variables of the study included BTC and MBT as the independent variables and M3 as a dependent variable. The quantitative methodology used involved the applications of econometrics analysis as the estimation methods. The quarterly time series data (2014q1 – 2021q4) used were obtained from both the Bank of Tanzania, the Tanzania National Bureau of Statistics and the online data from www.blockchain.com. The main variables of the study included BTC and MBT as the independent variables and M3 as a dependent variable. The Vector Error Correction Model (VECM) was used to estimate the empirical regression model, while STATA software 14 was used to analyse the data. The results indicate of the VECM indicated that there was a significant negative relationship between BTC and M3 variables on the one the one hand, and a significant positive relationship between MBT and M3 variables in Tanzania. The study concluded that there was a significant effect of the digital currency on monetary policy in the country. The study recommended that the government should education the people on how the digital currency operates, it should strengthen monetary policy practices, and try to learn from others countries that use the digital currency. This would help the country to officially allow or reject the use of digital currency in the country.