Countries suffering from an inflationary problem fall into three categories: the ones that have a sharply rising cost of living; the ones gripped by hyperinflation; and the ones where things are so bad comparisons are made with Germany in 1923. With the International Monetary Fund predicting that inflation will hit 1,000,000% by the end of the year, Venezuela falls into the third category.

It wasn’t always this way. Venezuela has the highest oil reserves in the world and could once boast of being one of the richest countries in Latin America. Poverty levels were more than halved under the former president, Hugo Chávez, and there was bountiful public investment in health and education.

14m bolivars for a chicken: Venezuela hyperinflation explained Read more

However, the spending continued even when the revenues from oil started to dry up – and the government in Caracas took to printing money to finance ever-bigger budget deficits. Investment in the oil industry was cut, leading to lower production. Financial sanctions imposed by the US have not helped.

The upshot is that Venezuela’s economy has shrunk by a third in the five years to 2017 – a worse performance even than Greece – and it has the highest inflation rate in the world. Measures to tackle the crisis were announced by Nicolás Maduro, the country’s president, last Friday and came into force on Monday. The chances of the emergency package working do not look good.

History suggests that successful attempts to tackle runaway inflation involve four key ingredients, and Maduro only has one – or at best one and a half – of them.

First, it is important to make a break with a currency seen as worthless. Maduro has lopped five zeroes from banknotes so there will be no need, as was reputedly the case in Weimar, Germany, for citizens to trundle wheelbarrows of cash to the shops.

Second, it helps if the new currency is credible to the public. This can be done in a number of ways: by pegging it to the dollar or by securing financial support from the IMF. These two options are anathema to Maduro, who has instead pegged the new bolivar to a new cryptocurrency that has yet to start circulating and which will rise or fall according to the global price of oil. Unsurprisingly, the stability of the new bolivar has already been called into question.

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Third, it is important that currency reform goes alongside an economic strategy designed to foster consumer and business confidence. Maduro’s announcement of a 60-fold increase in the minimum wage is likely to do the opposite because it will lead to still higher inflation and company failures. The government has said it will fund the minimum wage increase for small and medium-sized companies for 90 days. It is unclear what will happen after that.

Finally, it helps if the international outlook brightens, as it did for Germany after the crisis of 1923. However, Maduro will look in vain for assistance from Donald Trump because the White House thinks it more likely that there will be regime change if the current mess worsens. Which, tragically for Venezuela’s longsuffering people, it will.