Venezuela | One of the greatest currency devaluations in history launched 

Nurses holds a sign with a fake Venezuelan’s bills, representing how low their salaries have been devalued by inflation

Venezuelan President Nicolas Maduro carried out one of the greatest currency devaluations in history over the weekend – a 95 percent plunge that will test the capacity of an already beleaguered population to stomach even more pain.

One likely outcome is that inflation, which already was forecast to reach 1 million percent this year, will get fresh fuel from the measures. A massive exodus of Venezuelans fleeing the crisis to neighboring countries will likely increase and with it, tensions and restrictions like the ones seen over the past few days.

The official rate for the currency will go from about 285,000 per dollar to 6 million, a shock that officials tried to partly offset by raising the minimum wage 3,500 percent to the equivalent of just USD30 a month. While Maduro boasted in Friday night’s announcement that the International Monetary Fund wasn’t involved in the policies, aspects of the moves bore a resemblance to a classic orthodox economic adjustment, albeit with some confusing twists.

Maduro’s new strategy for managing the economy is a desperate response after years of disastrous policies that undercut growth, sent prices soaring and turned what had once been one of Latin America’s wealthiest countries into a dysfunctional nation that’s spawned a refugee crisis. Pressure is mounting on him to right the ship as calls for his overthrow grow six years after he took over for the late Hugo Chavez. Earlier this month, Maduro started a fresh crackdown on his opponents after a failed attempt to assassinate him using an aerial drone.

The devaluation comes at the same time the governments is redenominating the currency by lopping off five zeros and introducing new bills and a name change. So instead of the new minimum wage being 1.8 million strong bolivars, it will be 1,800 sovereign bolivars.

To make things more complicated, the new bolivar’s value will be linked to a crypto currency – believed to be the first time a government has ever employed the technique. The so-called Petro is backed by crude oil and is valued by the government at $60, or 3,600 sovereign bolivars. The Petro will fluctuate and be used to set prices for goods.

In some ways, the devaluation is a mere formality. For years now, most people and companies have been unable to access dollars at government-set rates and have been purchasing them in the black market. As a result, the prices on many goods across the country are already based on that exchange rate.

“They had to do this because they ran out of money,” Moises Naim, a fellow at the Carnegie Endowment and a former minister in Venezuela, said from Washington. He pointed out that oil production – pretty much the country’s sole industry at this point – has plummeted in recent years amid a shortage of equipment and technical expertise, foreign reserves have plummeted and allies such as China and Russia are providing less support.

Amid the cash crunch, Maduro has halted most payments on Venezuela’s foreign debt and is now $6.1 billion in the hole with bondholders, cutting off most sources of new financing.

The symbolism of announcing the drastic measures on a Friday night wasn’t lost on many Venezuelans. In 1983, President Luis Herrera Campins devalued the bolivar for the first time in 22 years after oil prices crashed. The day became to be known locally as “Black Friday.”

When in 1989 Venezuela raised gasoline costs, lifted foreign-exchange controls and let the currency plunge, prices soared 21 percent in one month alone, leading to riots known as the “Caracazo” that killed hundreds and eventually paved the way for Chavez’s rise to power.

The opposition, a fragmented group of parties whose leaders are either in hiding or in jail, called for protests against the measures today. Several labor unions also called for a 24-hour national strike. Bloomberg