Venezuela's 400% Inflation Problem Has a Dollar-Shaped Solution
Steve Hanke, professor of applied economics at Johns Hopkins University, has been named a special advisor to Venezuela's National Assembly — and he is not arriving with half-measures. His prescription for the country's 400% annual inflation is full dollarization: scrap the bolivar, shutter the central bank, and let the U.S. dollar do the work.
'Taming inflation is the key to restoring stability in Venezuela, and all the other progress flows from that,' Hanke told Fortune. 'Stability isn't everything, but without stability, which means stable prices, you have nothing. And there's no better case study showing that's true than Venezuela.'
Hanke estimates 50%-80% odds that the National Assembly approves the switch. If it does, he told Fortune, 'It would be the biggest switch from domestic currencies to an alternative since the introduction of the euro in 1999.'
The bolivar is already losing the battle on the street. The currency has fallen 78% against the dollar over the past year alone. According to Hanke, virtually everyone in Venezuela who is not employed by the government or receiving state aid and pensions already transacts in dollars — a dynamic he calls 'spontaneous dollarization.' That ground-level reality, he argues, dramatically raises the odds of making the arrangement official.
The obstacles are real. Eliminating the central bank means surrendering the lender-of-last-resort function and ceding monetary policy entirely to the Federal Reserve. Those are not trivial concessions. Hanke's own track record illustrates the risk: Zimbabwe dollarized in 2009 under his informal guidance, reined in hyperinflation, then reversed course in 2013 — and hyperinflation returned. His earlier attempt in Venezuela, a currency-board proposal in the mid-1990s, also failed to clear the National Assembly.
The upside case is substantial. Venezuela carries roughly $250 billion in external debt, equivalent to approximately 150% of GDP. Hanke argues that dollarization would catalyze a surge of foreign investment into the oil sector, generating the hard-currency revenue needed to service that debt. Lower inflation would compress interest rates, unlocking consumer and business credit, reigniting the housing market, and driving domestic investment. 'If it happens soon, Venezuela would take off from negative growth this year to positive growth next year,' he said.
The comparison to Argentina is instructive. President Milei campaigned on dollarization, then stepped back from it after taking office — opting instead for deep subsidy cuts and deficit reduction that cooled inflation sharply, though the annual rate remains elevated. Argentina is still defending a peso pegged to the dollar, and regional elections last year that hurt Milei's party sent the currency into a tailspin, requiring a currency swap line from Treasury Secretary Scott Bessent.
The CEO Times take: The Venezuelan case is a textbook demonstration of what happens when a central bank is weaponized to finance government spending. Decades of bolivar destruction have already forced a de facto dollarization from the bottom up — the market voted long before the National Assembly did. Hanke's plan simply ratifies what free exchange has already decided. The real question is whether Caracas has the institutional discipline to lock in the gains and resist the temptation to recreate the money-printing apparatus that produced the crisis in the first place. Capital rewards clear rules. Venezuela's oil wealth is sitting idle waiting for exactly that signal.
