Digital financial inclusion and monetary policy effectiveness in Tanzania

Digital financial inclusion, which has gained prominence from mobile money uptake, has substantially affected the effectiveness of monetary policy in Tanzania, but little is known regarding its implications on the policy itself. This study examines existing relationships between mobile money usage, growth of broad money (M2) and interbank rates using quarterly data (2015 - 2024) and employs time-series econometrics and structural breaks tests. The findings indicate bidirectional causality: mobile not only weaken M2 growth, it initially depressed interbank rates, and afterwards, post-2021 was positively correlated with rising interbank rates, which interpreted as a regime shift as established by structural break analysis. These findings confirm the changes mobile money has undergone from alleviating liquidity tool, to as a structural variable of monetary policy outcomes, warranting adjustments by central banks to incorporate the transformation of financial systems stemming from digital finance into their frameworks for sustaining macroeconomic stability in Tanzania's digitizing economy. Furthermore, the study contributes to the literature linking digital financial inclusion to implications on adjustments to monetary policy and consequently foundation practical takeaways for Bank of Tanzania and policymakers alike on better maintaining balance between innovation and stability.