US Dollar Can’t Mend Venezuelan Economy

Decoding the Dollarization Debate in Venezuela

Antonio Ecarri, a non-chavista politician, and Steve Hanke, an American economist, recently rekindled the longstanding conversation concerning the formal dollarization of Venezuela’s economy. Years of economic turmoil, characterized by continuous devaluations, hyperinflation, and scarcity, have led to a highly fractured monetary regime in the country.

In Venezuela, the majority of transactions are primarily governed by de facto dollarization. Other forms of currency, including the bolívar, crypto stablecoins, euros, and currencies from neighboring countries, account for a smaller proportion of the monetary market share. The U.S., which is keen on stabilizing Venezuela’s economy to inspire confidence in foreign investors, regards this fragmented monetary ecosystem as a significant setback to the progress made so far.

Venezuela’s Economic Climate

The economic landscape in Venezuela has seen a marked improvement since the U.S. took control over Delcy’s decisions following Maduro’s capture. The spike in recovery can be attributed primarily to the initiative to revive oil exports to the U.S., which witnessed a rise of 192% from their 2025 average by April. Leading the charge towards recovery, the energy sector is attempting to partially offset the devastation caused by the twin earthquakes.

Projections for Venezuela’s GDP growth are set at 5.8%, almost quadruple the country’s growth in 2025 (1.5%%). Nevertheless, the looming threat of inflation and instability amplifies investors’ apprehensions about entering the Venezuelan market. The interim regime’s repeated promises to narrow the exchange gap and combat inflation have not translated into action, further exacerbating the issue.

The bolívar continues to depreciate as Delcy stimulates the money printer to maintain chavismo’s patronage system. Additionally, while restrictive exchange rate controls persist, official transactions with and credit loans in dollars remain prohibited. These factors collectively create an artificial tax on USD transactions, thereby fostering a climate of fear among businesses that may face penalties for using the foreign currency.

“Eliminating inflation would require abolishing all existing exchange rates and creating a new one based on an agreed technocratic approach.”

The monetary crisis has manifested in a steady rise in inflation. In July alone, inflation surged by 6.1%, pushing the year-on-year inflation to 576%, and the cumulative inflation for 2026 to 175.5%.

Dollarization and its Implications

The idea of dollarization in Venezuela is not new. However, U.S. control over the country’s economy has potentially increased the likelihood of its implementation. Although dollarization could rapidly instill trust and reduce inflation, it raises significant concerns about its enactment under the interim regime and the future of Venezuela’s monetary sovereignty.

Proponents of dollarization primarily highlight three advantages: the elimination of inflation, imposition of fiscal discipline, and eradication of corruption. But Hanke asserts that there are no prerequisite institutional, fiscal, or political conditions for dollarization to succeed. However, all three areas must be willing to advance. Achieving zero inflation would necessitate the removal of all current exchange rates and the creation of a new one, decided using a technocratic method. Presently, there’s no incentive within the interim regime’s leadership to merge the exchange rates.

“A struggling or failed dollarization plan could further erode trust while leaving the country even more vulnerable to external shocks.”

The differentiation in the exchange rate is not an economic policy error overlooked by chavismo. It is an integral part of their strategy to weaken and replace former political elites with their selected, loyal counterparts. As economist Juan Comella argued in May, no signs of change are evident in this area, as such action would threaten the status quo preserving Delcy’s power.

As the realities stand, a faltering or failed dollarization plan could aggravate trust issues and leave the country highly vulnerable to external shocks. The constraints brought on by dollarization, such as a severely restricted Central Bank, will not remedy years of institutional erosion. Instead, it may introduce a new set of challenges, threatening an already fragile economic recovery.

The Bolívar Controversy

Years of monetary policy failures have made the population distrustful of the bolívar. The system and institutions have, for a long time, incentivized and rewarded individuals to exploit its vulnerabilities at the population’s expense, while escaping personal consequences.

The issue does not lie with the paper the bolívar is printed on, but with the system behind it. The idea of a plan that allows the Venezuelan Central Bank complete independence isn’t far-fetched. Such a plan would empower the right individuals to protect the economy from inflation risks while keeping government spending in check and preparing for external shocks.

Relinquishing monetary sovereignty could pose a significant setback in a world where government intervention is crucial in addressing modern concerns, such as AI and disaster relief. Maintaining the bolívar, even in a competitive currency market, would allow the people to decide which currency they trust.

“Starting a dollarization process under chavista rule is similar to entrusting the reconstruction of Venezuela’s oil sector to a businessman who contributed to the destruction of the country’s electricity grid.”

As the dust around the Ecarri-Hanke proposal settles, it is clear that a departure from both trauma-led calls for complete dollarization and a patriotic defense of the bolívar is necessary. Instead, the focus needs to be on economic stability and Venezuela’s capacity to meet future challenges.