Venezuela dollarizing would be the biggest currency switch since the advent of the euro, Hanke says

Key Points:

• Johns Hopkins applied economics professor Steve Hanke has been named a special advisor to Venezuela’s National Assembly and advocates full adoption of the U.S. dollar to combat the country’s 400% inflation.
• Hanke argues that dollarization would stabilize prices by eliminating the risk of the central bank printing money, which currently fuels hyperinflation, and cites his past success with dollarization in Montenegro, Ecuador, and Zimbabwe.
• Despite prior failed attempts, Hanke estimates a 50%-80% chance that Venezuela will approve dollarization, noting that a large portion of the population already uses U.S. dollars informally due to the bolivar’s collapse.
• Challenges remain, including the loss of Venezuela’s central bank and ceding monetary control to the U.S. Federal Reserve, concerns also seen in other countries like Argentina, which has resisted full dollarization despite inflation pressures.
• Hanke predicts that official dollarization would boost foreign investment in Venezuela’s oil sector, help manage its $250 billion debt, lower interest rates, and stimulate economic growth, potentially reversing the current negative growth trajectory.