THE news that Venezuela has devalued the bolivar by 50% seems to have been quite well received by financial markets. The country's dollar-denominated government bonds have risen in price, according to Bloomberg.

That may well be because the devaluation is, in effect, a belated (and only partial) recognition of reality. Hugo Chavez has moved the official bolivar rate from 2.15 to 4.3 to the dollar for "non-essentials" (and to 2.6 for everything else). But in the black market, the currency was trading at 6.2/$. So this is more about accounting than anything else. By raising the bolivar revenue of dollar earnings from oil exports, the effect is to boost government revnues, and thus cut the budget deficit. The market view seems to be that a lower deficit has improved the outlook for government bonds.

Nevertheless, we need to remember that devaluation is the modern equivalent of the medieval habit of shaving silver and gold off coins. With Venezuelan inflation running at 27%, the internal purchasing power of its citizens has already been reduced; now the external purchasing power has been cut as well.

The president has vowed to punish those companies that raise domestic prices in response. That will just add to the creeping takeover of business by the state. And the end result, as has been seen in Zimbabwe, will be that goods will vanish from the shops.