Cash crisis, inflation worsen in Zimbabwe

/ Source: The Associated Press

Zimbabwe's bank chief plans new currency reforms — removing "more zeros" from the plummeting Zimbabwe dollar and raising the limit on cash withdrawals — to tackle the country's runaway inflation and cash shortages, state media reported Sunday.

Previous currency reforms have failed to tame Zimbabwe's inflation — officially pegged at 2.2 million percent a year but estimated by independent analysts to be closer to 12.5 million percent. It also has become virtually impossible to get access to cash as the country's economic collapse worsens.

Authorities last week released a new 100 billion dollar bank note. By Sunday it was not enough even to buy a scarce loaf of bread in what has become one of the world's most expensive — and impoverished — countries.

The Sunday Mail, a government mouthpiece, reported that central bank reserve governor Gideon Gono told an agricultural show Saturday he would introduce the new measures in the coming days to make sure cash shortages are a "thing of the past."

Western sanctions being blamed
Zimbabwe's government says western sanctions — tightened last week — are mainly to blame. Critics blame mismanagement by President Robert Mugabe's government and a land-reform program that slashed the country's agricultural production.

To improve liquidity on the market, Gono was going to remove "more zeros," the paper reported.

"This time, we will make sure that those zeros that would come knocking on the Governor's window will not return. They are going for good," Gono was quoted as saying.

In 2006, the central bank slashed three zeros from the currency when inflation stood at a few hundred percent, already the highest rate in the world then.

Computers, electronic calculators and automated teller machines at banks have not been able to handle basic transactions in billions — nine zeros — or trillions — 12 zeros — or even quadrillions, with 15 zeros.

A new laptop computer was advertised Sunday at 1.2 quadrillion Zimbabwe dollars. That's the equivalent of about $25,000 at the official exchange rate, $8,500 at the black market cash exchange rate, or $2,000 at a third exchange rate used in electronic money transfers through bank accounts that don't involve the physical issue of Zimbabwe dollar bank notes.

Many businesses at standstill
Zimbabwe's money shortages, inflation and chronic shortages of food, gasoline, medicine and most basic goods have brought many businesses in Harare to a standstill. Smaller shops and at least four main restaurants have shut down.

The state media reported Saturday that nightclubs canceling music shows because audiences dried up after a 2,000 percent increase in beer and soft drink prices in the past week. Several bars and clubs were openly accepting U.S. dollars, even though that is against the law.

The Sunday Mail said Gono warned businesses against accepting hard currency.

"Dollarization is not a position we have taken. We are not in that situation yet. Report all such persons to the nearest police station," Gono said.

Shortages of local cash have worsened dramatically. Earlier this month, a German company, under pressure from the Berlin government, stopped selling bank note paper and printing software to Zimbabwe's central bank.

Gono, according to the Sunday Mail, described the end of a 40-year-long contract to supply bank note paper as part of the West's "devilish" economic sanctions against Mugabe's government. The European Union last week tightened sanctions and the United States followed suit on Friday.

Central bank officials have indicated bank note paper was being sought in Asia and through neighboring South Africa.