Venezuela Dollarization Push: Steve Hanke’s Blueprint to End 400% Hyperinflation

Venezuela dollarization plan gains momentum

Steve Hanke, the Johns Hopkins professor dubbed the “money doctor,” has been appointed special adviser to a leading figure in Venezuela’s National Assembly. His mandate: design a full Venezuela dollarization law that would retire the bolivar and shut down the central bank, a move aimed at halting ↓ 400% annual inflation that now dwarfs the Reuters benchmark for hyperinflation.

Why Hanke’s prescription matters

The country’s oil output languishes at ↑ 1.1 million bpd, roughly one‑third of its 1998 peak, limiting the flow of petrodollars needed to service a $250 billion debt load. Hanke argues that without a hard anchor, the government will continue to fund deficits by printing bolivars, a practice that fuels price spikes in food, medicine and rent.

“Stability isn’t everything, but without stable prices you have nothing,” Hanke told Bloomberg.

Venezuelans have already begun a “spontaneous dollarization,” using U.S. cash and stablecoins such as USDT for everyday purchases, a trend that mirrors the pandemic-driven shift toward digital payments in other economies.

Political hurdles remain. The Assembly must pass the bill, a prospect Hanke rates at 50‑80% likelihood, and the government must reassure foreign investors that property rights will be protected. U.S. oil majors, wary after past expropriations, have so far limited themselves to buying Venezuelan crude for Gulf Coast refineries, avoiding capital commitments to rebuild PDVSA’s crumbling infrastructure.

If enacted, dollarization would eliminate seigniorage revenue, force the state to live off oil earnings and external financing, and lock in a fixed exchange rate that removes monetary discretion. Critics note that such a step sacrifices tools for crisis management, but Hanke points to Montenegro (1999), Ecuador (2000) and Zimbabwe (2009) as cases where a hard‑currency anchor halted runaway inflation.

In Hanke’s view, the next step for Caracas is to adopt the “pump‑to‑the‑max” strategy championed in the UAE, pushing OPEC for a higher quota or exiting the cartel altogether to unleash its 380 billion barrel reserve base.

Analysis by Victor Hale (Equities & Market Dynamics Analyst).