Venezuela eyes full US dollar adoption to halt 400 percent inflation
Special advisor Steve Hanke is pushing the Venezuelan National Assembly to fully adopt the US dollar, a move that would mark the largest currency switch since the euro and potentially unlock the country's oil sector and debt restructuring.
Steve Hanke, a special advisor to the Venezuelan National Assembly, is urging the government to completely abandon the bolivar in favor of the US dollar. The Johns Hopkins University professor estimates there is a 50% to 80% probability that lawmakers will approve the full currency switch to combat the nation's 400% inflation rate.
Adopting the greenback would eliminate the central bank and transfer monetary policy control to the US Federal Reserve. Hanke argues this structural change is the only way to prevent the government from printing money to finance its deficits. He emphasized that “taming inflation is the key to restoring stability in Venezuela, and all the other progress flows from that.”
The proposal builds on existing market realities, as the bolivar has lost 78% of its value against the dollar over the past year. Hanke pointed out that a widespread informal shift to the dollar is already underway among private citizens and businesses. This spontaneous dollarization significantly improves the likelihood of formalizing the transition.
If enacted, the transition would represent the most substantial shift from a domestic currency to a foreign alternative since the euro debuted in 1999. Hanke previously guided similar monetary overhauls in Ecuador in 2000 and Zimbabwe in 2009. An earlier attempt to implement a currency board in Venezuela during the mid-1990s failed to secure legislative backing.
For investors, official dollarization could unlock the oil-dependent economy by triggering a surge in foreign direct investment. Hanke predicts that increased crude production would generate the hard currency required to service the country's $250 billion debt load, which currently equals roughly 150% of its gross domestic product.
Eradicating hyperinflation would also drive down domestic interest rates, stimulating consumer borrowing and reviving the housing market. Hanke projected that if the switch occurs soon, “Venezuela would take off from negative growth this year to positive growth next year.”
Relinquishing the lender of last resort remains a formidable political hurdle for the National Assembly. Regional peers have faced similar challenges, with Argentine President Javier Milei ultimately abandoning his dollarization pledge in favor of defending a pegged peso with the help of a US Treasury swap line arranged by Scott Bessent.
