Attempts to tame Zimbabwe's multimillion percent annual inflation rate had an inauspicious beginning on 1 August when banks turned customers away after running out of cash.

Reserve Bank governor Gideon Gono sees the introduction of a new currency that will lop off ten zeroes from the old currency, effectively revaluing Z$10 billion to one Zimbabwe dollar, as the solution to the country's hyperinflation.

On 4 August, US$1 was equivalent to Z$75 on the parallel currency exchange market. The largest denomination of the new currency is Z$500 (US$6.60).

The new attempt to curb inflation - estimated at 2.2 million percent by the government and at more than 15 million percent by independent economists - was announced in Gono's half-yearly monetary policy statement on 30 July and implemented two days later.

He said the new notes, along with the bearer and agro cheques being used as currency, would remain in circulation until 31 December. He recommended that wage and salary increments be frozen for six months.

"The six-month moratorium is suggested here as the most credible foundation and seed for the retransformation of market trends and micro-level pricing behaviour into stable and predictable modes," he said.

President Robert Mugabe, 84, who attended the monetary policy presentation, threatened to impose a state of emergency if the business sector continued to adjust its prices in line with the hyperinflationary environment.

"We have the power to invoke further measures, but we do not want to use the emergency rules. Emergency measures can be taken but we do not want that yet. We can do that to deter unjustified price increases," said the president, who has ruled for 28 years.

A bank manager, who declined to be identified, told IRIN that they had not received the new notes. "Our only problem is that the maximum withdrawals have been increased to Z$2 trillion (US$200) per customer per day, and as a result we have run out of cash. The Reserve Bank has not given us any additional supplies of money." Delivery vans were parked outside the central bank, waiting to transfer the new currency to rural areas.

The printing money habit

The notes were manufactured in 2007 by a German company, but additional trade restrictions imposed after Zimbabwe's elections in March were dismissed as a sham by the European Union, led paper suppliers Giesecke & Devrient cancel their contract.

The decision put pressure on an Austria-based company, Jura JSP, which provides the specialised software used to print forgery-proof bank notes, to review its business relationship with Mugabe's government.

The EU has frozen bank accounts and slapped travel restrictions on Zimbabwe's ruling elite in protest against the government's human rights violations.
In August 2006, Gono chopped three zeroes from the currency in a bid to contain inflation, which was then running at 1,183 percent, describing his policy as a "sunrise - a new beginning for Zimbabwe".

Independent economist Tony Hawkins dismissed Gono's latest strategy as little more than posturing. "What monetary policy? That was a political statement that was made. The nonsense about Zimbabwe being under sanctions was not monetary. There were a few currency changes, but that is where it ends. Freezing wages is not going to end hyperinflation," he told IRIN.

"The main causer of hyperinflation is Gideon Gono, who is printing money, which is being used for handouts and is being given to political thugs to beat up people."

Hawkins said unless there was a political settlement, the zeroes would be back on the currency in a few months. "We are looking at a situation whereby the (US) dollarisation of the economy is going to increase, because our own money would have become worthless."

The ruling ZANU-PF party and the opposition Movement for Democratic Change are engaged in negotiations, but no settlement has been reached.

IRIN