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Zimbabwe reverses banknote expiry, adds more cash
Reuters
December 31, 2007

http://africa.reuters.com/business/news/usnBAN154842.html

Zimbabwe's central bank on Monday reversed its decision to phase out a Z$200,000 banknote and pumped in Z$33 trillion into markets to try ease a severe cash shortage that has left thousands of shoppers stranded.

The southern African country is battling an economic crisis, blamed on President Robert Mugabe's policies and marked by the highest inflation rate in the world at nearly 8,000 percent as well as shortages of food, foreign currency and fuel.

Banknotes have recently joined the growing list of items in short supply, with thousands of desperate consumers besieging banks in the run-up to the Christmas and New Year holidays.

Central bank governor Gideon Gono, who said the bulk the country's currency was outside the banking system, blames the banknote shortage on a rampant black market and foreign currency trade.

Earlier this month, Gono introduced Z$750,000, Z$500,000 and Z$250,000 notes and announced that the Z$200,000 bill -- which he says is mostly used by foreign currency traders -- would be put out of circulation on January 1.

On Monday, Gono told reporters that the plan to withdraw the Z$200,000 note from circulation was a "tactical transitional intervention" meant to trigger deposits of the note -- which made up 98 percent of all notes in circulation -- back into the banking system.

"The legal tender status of the Z$200,000 note is now re-instated and extended to a future date which would be announced when it is deemed strategic to do so," Gono said.

Gono said there had been a surge in deposits ahead of the December 31 deadline.

He also said the central bank had injected Z$33 trillion in new notes to end a cash crisis that has seen long, winding queues at banks which are failing to cope with the huge demand for banknotes.

All banks in Harare's central business district were flooded with customers hoping to withdraw money ahead of the New Year holiday on Tuesday.

"We will ensure that there is sufficient cash in the economy," Gono said.

"Having pumped in another Z$33 trillion in the new denominations, we can now safely say with Z$100 trillion in circulation -- inflationary as it is -- there should be enough cash."

Gono said the cash crisis is a sign of an ailing economy, which critics blame on Mugabe's controversial policies such as the seizure of white-owned farms to resettle landless blacks.

Mugabe, 83 and Zimbabwe's sole ruler since independence from Britain in 1980, denies mismanaging the economy and says it has been sabotaged by western nations as punishment for his land reforms.

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