Chavismo blocks proposal to dollarize Venezuelan economy

Deputy Antonio Ecarri, leader of the centrist Alianza del Lápiz party, was removed a week ago from the presidency of the Venezuela–United States Parliamentary Friendship Group —a post he had held for only two months— in a decision announced by the National Assembly president, Jorge Rodríguez. The reason: Ecarri’s announcement that he would begin talks with U.S. economist Steve Hanke to evaluate a plan to dollarize the economy and eliminate the bolívar. Many treated the prospect of formal dollarization as a done deal before Rodríguez denied it, calling it “false, absurd and outrageous,” while also announcing an investigation into Ecarri for undermining the credibility of the legislature.

Hanke — an academic at Johns Hopkins University known for advising countries such as Montenegro, Ecuador, and Zimbabwe on similar measures — has already drafted a bill for parliament that, according to the economist himself, respects the jurisdiction of the Venezuelan Central Bank (BCV) and constitutional guidelines. Ecarri’s initiative gained traction rapidly on social media and was met with support by a significant segment of public opinion.

In a country mired in a chronic currency crisis and with the world’s highest inflation — exceeding 500% annually, according to private firms — the promise of the dollar offers an alluring illusion of stability that is hard to ignore. Chavista economic mismanagement and international sanctions have kept Venezuela in a prolonged financial storm. The record includes three failed monetary reconversions (2008, 2018 and 2021), a historic hyperinflation in the past decade and a bolívar depreciation approaching 100% over the last five years.

Since 2018, driven largely by Delcy and Jorge Rodríguez, Nicolás Maduro’s government promoted a de facto dollarization that temporarily dampened the inflationary spiral and restored some predictability to daily life. Today, most goods are priced in dollars with their bolívar equivalent shown at the official rate. A precarious cash supply of foreign currency coexists with frequent digital transactions routed through U.S. banking.

The bolívar remains, however, the official currency and dollar use is subject to BCV rules. Since 2024, within this dual framework, the executive branch has tried to curb the dollar’s influence to strengthen the national currency, but macroeconomic results have been unfavorable: insufficient growth and a renewed inflationary uptick.

Dubbing the sanction against him an “aberration,” Ecarri defended his stance: “As a lawyer and deputy I can have whatever adviser I want, especially if it’s Professor Steve Hanke, an authority on the subject and my personal adviser for some time.” The lawmaker says he has studied dollarization for years as a way to eradicate the country’s structural problems and asserts the measure has popular backing: “We are at a key moment to have this debate. Venezuela is already dollarized in practice. The government itself just approved a law that allows rent to be collected in foreign currency.”

“Venezuela has no currency,” Ecarri emphasizes. “We created a National Economic Forum to debate the proposal and present the bill. We must forge a financial and energy alliance with the United States. The dollar will accelerate investment in gas, electricity, rare earths, oil and infrastructure, as well as curb inflation and capital flight,” he explains.

Opposition from economists

Despite enthusiasm from its promoters, formal dollarization faces opposition from most economists. “I understand it’s a popular option because people are desperate for a stable reference,” says José Guerra, an economist at the Central University of Venezuela. “Its advantage is that it curbs inflation quickly and allows long-term credit. But for an oil-producing country it is a straitjacket: without a central bank issuing currency, an external shock will cause deflation, making it impossible to pay wages or finance public spending, as happened in Ecuador. It also creates a high dependence on the United States and is a one-way street.”

Rodrigo Cabezas, a professor at the University of Zulia, former finance minister under Hugo Chávez and an advocate of the 2008 reconversion, expresses a similar view: “I am completely opposed to losing the national currency. It is not reasonable for a nation to give up two essential economic-policy tools such as monetary and exchange-rate policy. You lose control over interest rates and investment credit, as well as the external competitiveness needed to industrialize the country.”

Omar Zambrano, chief economist at Thinkanova and a professor at Universidad Católica Andrés Bello, concurs: “The country arrives at this debate out of exhaustion. The problem is that even if it dollarizes, inflation will not immediately converge to U.S. levels. During that transition, domestic costs rise above international ones and production becomes very expensive. Dollarization strangles any activity outside the extractive sector that generates foreign currency and caps growth.”

Hanke, for his part, outlines the mechanics of his plan: “The transition would begin with the establishment of a fixed exchange rate. From there, bolívar accounts would be converted to dollars. The central bank would retain administrative functions but would not be permitted to carry out discretionary monetary policy.”

Between 1940 and the mid-1980s the bolívar traded at three to four units per dollar, making it one of Latin America’s strongest currencies and a magnet for European and regional migration. That reputation for a strong currency lasted for three generations but today survives only in the memory of Venezuelans aged over 60.

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