ZIMBABWE TO INTRODUCE LOCAL BANK NOTES END-OCTOBER: CENTRAL BANK

Reserve Bank of Zimbabwe Governor, John Mangudya.

HARARE (Reuters) - Zimbabwe will introduce local bank notes, known as "bond notes", at the end of October, the central bank governor said on Thursday, raising fears of a return to a domestic currency abandoned in 2009 due to hyperinflation.

Zimbabwe is in the throes of its worst financial crisis since it switched its currency for the U.S. dollar, and the new notes are meant to help address cash shortages that have fueled protests against the government.

Reserve Bank of Zimbabwe governor John Mangudya said during a monetary policy statement, the equivalent of $75 million in the notes would be circulated by year-end, adding the bank was "very far" from re-introducing a local currency.

An independent body would monitor the printing and circulation to make sure things did not get out of control, he added.

But activist leaders said the scheme would not answer their concerns and promised more rallies against economic hardships and the man they blame - 93-year-old President Robert Mugabe.

"They (the bond notes) are not acceptable. It's a way of trying to steal our money. Our action on the ground will demonstrate our resolve to stop that madness," said Promise Mkwananzi, the leader of the #Tajamuka protest movement.

"IT'S ABOUT TRUST"

Mkwananzi was released on bail on Thursday, after spending three weeks in custody on charges of violence during anti-government protests.

Mugabe did not release a statement on Thursday, but has called bond notes a "surrogate currency" that would prevent foreigners taking greenbacks out of the country and improve liquidity.

The central bank's Mangudya, sought to allay worries by saying the bond notes, to be initially circulated in $2 and $5 denominations, would account for less than one percent of the $6 billion held in bank deposits.

"It's about trust and confidence and we are saying if you don't want them (bond notes), don't take them. We won't overprint the bond notes," Mangudya said.

But an executive at a Harare commercial bank said that most people wanting to withdraw cash would eventually get bond notes.

"Most people still withdraw cash and because it is scarce, it is most likely that you will be given bond notes at your bank and it stops being an option," said the executive.

Mangudya said Zimbabwe had imported $250 million cash between May and September. He also said the central bank had agreed with banks to cap interest rates at 15 percent.

Reuters