Last week Venezuela devalued its currency, the bolivar, by 95%, cutting five zeros off the exchange rate. This measure was a desperate response to hyperinflation that reached an astonishing rate of 83,000% YoY in July, with prices doubling every 26 days.

The IMF has projected the rate could reach one million percent this year. Cash transactions had become almost impossible, with even restaurant tips being done as bank transfers. The new currency, the “sovereign bolivar,” is linked to the petro, a state-run cryptocurrency that can be manipulated. In other words there is no constraint on the ability of the government to issue this cryptocurrency and print further sovereign bolivars.

Despite Venezuela’s having the world’s largest proven oil reserves, the country’s economy is in a shambles due to the mismanagement since 1999 by the socialist governments of Presidents Hugo Chavez and Nicolás Maduro. The economy dropped by more than a third since 2013 and is now in freefall. Unwise price controls and exchange controls had unintended consequences. Expropriations, corruption, and serious mismanagement of the state-owned oil company further depressed the economy. The government goes on printing money, and the budget deficit now exceeds 30% of GDP. A further increase in the minimum wage to 34 times its previous level, another element of the government’s “magic formula” to counter the economy’s dire state, will likely add to that deficit since the government will cover the greatly increased cost to private firms for 90 days.  Government borrowing to fill the financing gap has led to the issuance of some $60 billion in sovereign bonds and perhaps double that amount in loans.

Life in the country has become difficult, unbearable for many, with 2.3 million of the country’s population of 31.3 million leaving the country since 2014. There are major shortages of food, and child malnutrition is at a record high. In some cities there are water shortages and power cuts, which have been particularly hard for public hospitals, which also face serious shortages of medicine. It is not surprising that Venezuelans are voting with their feet.