Zimbabwe is knocking 10 zeros off its currency because its computers and ATMs cannot handle basic transactions in billions and trillions of dollars.
The revaluing - which turns Z$10bn into Z$1 - was announced by the central bank governor, Gideon Gono yesterday and will take effect tomorrow.
It comes a week after the issue of a Z$100bn note - still not enough to buy a loaf of bread.
Gono said the new money would be launched with Z$500 notes and added that he was reintroducing coins, which have been obsolete for years.
Zimbabwe has the world's highest inflation rate, which is officially running at 2.2m% but which independent economists say is closer to 12.5m%.
John Robertson, an economist, said the new bills would soon be worthless as the rate of inflation continued to soar. What cost 50p at the beginning of the month could cost £10 by the end, he added.
"This is attending only to the symptoms of the problem," he told the Associated Press.
"The real problem is the scarcity of everything driving up the prices. The government has not only caused the scarcities but damaged our ability to fix the problem."
The Zimbabwean president, Robert Mugabe, yesterday threatened to impose a state of emergency if businesses profiteered from the economic crisis, potentially giving him even more sweeping powers if political power-sharing talks fail.
"Entrepreneurs across the board, don't drive us further," he warned in a nationally televised address after the currency announcement.
"If you drive us even more, we will impose emergency measures ... they can be tough rules."
The South African president, Thabo Mbeki, flew to Zimbabwe yesterday for further mediation in the country's political crisis.
Power-sharing talks, which began last week, have become bogged down over Mugabe's insistence that he should lead any unity government.
Officials said the issue of what position the opposition leader, Morgan Tsvangirai, should hold in a new administration was also causing difficulties.
"We are still negotiating ... we want to succeed," Mugabe said in his televised address. "You find room for compromise, but sometimes compromise is difficult."
Mbeki told reporters that talks would resume in South Africa on Sunday.
In an interview with Channel 4 yesterday, Tsvangirai yesterday described Mugabe as "human as everyone else".
However, he said the president was "in denial" about the economic problems and political violence that have wracked the country.
Tsvangirai added that he and Mugabe had a 90-minute dinner together last week.
Mugabe blames Zimbabwe's economic collapse on profiteers and US and EU sanctions, but economists say the crisis has been triggered by an ill-conceived land reform programme.
Land was seized from white farmers and given out to Mugabe supporters in the government and army who had no experience of farming.
The worsening conditions have eroded the popularity of Mugabe, who has ruled Zimbabwe for 28 years.
He finished second behind Tsvangirai in a March presidential election, but won the June runoff after his rival dropped out following violence in which more than 120 opposition activists died.
