Venezuela Could Make Historic Dollar Switch as 'Money Doctor' Sees 80% Odds

Johns Hopkins economist Steve Hanke, now a special advisor to Venezuela's National Assembly, estimates a 50% to 80% probability that Venezuela will formally adopt the U.S. dollar, scrapping the bolivar and its central bank. With inflation near 400% and the bolivar down 78% against the dollar over the past year, most Venezuelans already use dollars for everyday transactions. Hanke, known as the 'Money Doctor' for his track record in taming inflation, argues dollarization would attract foreign investment into the oil sector, generate revenue to service $250 billion in debt, and lower interest rates. If approved, it would be the largest currency switch since the euro's 1999 launch. Hanke describes this as 'spontaneous dollarization,' noting that nearly everyone outside government employees and state aid recipients already operates in dollars. His credibility is established: he guided Montenegro, Ecuador, and Zimbabwe through currency transitions. In Venezuela, he sees a favorable political landscape despite the risks of abandoning the central bank, which would eliminate monetary authority risks but also transfer control to the Federal Reserve. While Argentina’s dollarization attempt under Milei cooled inflation, it faced volatility. Venezuela’s oil-dependent economy would benefit from increased foreign investment, debt servicing, and lower interest rates, potentially shifting the economy from negative to positive growth. The timing is critical, as prolonged deliberation could deepen the crisis.