Zimbabwe to re-denominate dollar by lopping off zeros

By Nelson Banya

HARARE (Reuters) - Zimbabwe will slash 10 zeros from its currency from August 1, central bank Governor Gideon Gono said on Wednesday in another attempt to bring relief to consumers ravaged by hyperinflation.

But economic analysts said the move would do nothing to end an economic meltdown blamed on President Robert Mugabe's policies, which have helped to push official inflation to 2.2 million percent, the world's highest, and caused shortages of food and foreign currency.

"The Zimbabwe dollar will be redenominated by a factor of one to 10, which means we are removing 10 zeros from our monetary value. Ten billion (Zimbabwean) dollars today will be reduced to one dollar with effective from August 1," Gono said in a television broadcast.

"The new currency will co-circulate together with the family of bearer checks ... which shall cease to be legal tender on the 31st of December 2008," Gono said.

Prices are rocketing on a daily basis as ordinary Zimbabweans struggle to survive, prompting the introduction last week of a new 100 billion Zimbabwean dollar note.

Businesses justify price hikes as the only measure to avert collapse.

Gono in mid-2006 removed three zeros from the local dollar to make life easier for shoppers forced to carry huge piles of cash to make even the simplest purchases, but the move was followed by sharp price rises.

The government this month started distributing subsidized basic goods and quietly hiked salaries for its workers to an average 2 trillion Zimbabwean dollars, worth $33 dollars on the official market and as low as $3 on the parallel market.

The salary is enough to pay for 10 trips to work at today's fares or buy eight loaves of bread.

Mugabe accuses businesses of unfairly increasing prices as part of a wider plot to incite people against his government and on Wednesday warned companies that authorities would impose emergency measures if they continued profiteering.

Gono on Wednesday raised the daily cash withdrawal limit from 100 billion Zimbabwean dollars to 2 trillion Zimbabwean dollars, which analysts said was still far short of individual daily cash requirements.

"This (re-denomination) is just to overcome the absurd difficulty of having to deal with all those zeros but it does not address the root cause of the problem," John Robertson, an economic consultant, said.

"The problem is of scarcity of foreign earnings and investment inflows. I would like to see the government remove its 51 percent empowerment requirement on all new investments."

Mugabe early this year signed into law a bill giving local owners majority control of foreign-owned firms, including mines and banks.

(Additional reporting by MacDonald Dzirutwe; Editing by Phumza Macanda, David Christian-Edwards)