Venezuela dollarization plan gains political momentum as inflation tops 500%

A proposal to formally adopt the US dollar is moving into Venezuela’s political mainstream as the country seeks to stabilize an economy battered by years of inflation and turmoil.

Opposition lawmaker Antonio Ecarri is working with US economist Steve Hanke on legislation that would replace the bolivar with the dollar across Venezuela’s financial system. 

More than half of Venezuelans support the idea, according to a May AtlasIntel survey for Bloomberg News.

Dollars are already widely used for pricing and savings after hyperinflation pushed businesses and households toward the US currency around 2019. 

Under official dollarization, bolivar cash, deposits, debts, contracts, and wages would be converted into dollars at a set exchange rate.

Ecarri plans to present the proposal to the National Assembly, but its president, Jorge Rodríguez, has rejected the idea. He cited constitutional provisions that establish the bolivar as Venezuela’s monetary unit and give the central bank authority over monetary policy.

Supporters say dollarization could reduce inflation exposure, prevent deficit financing through money creation, and remove frictions from using two currencies. 

US Treasury Secretary Scott Bessent has also said the dollar should become central to Venezuela’s trade, although the US government has not announced plans to replace the bolivar as legal tender.

The plan would carry major trade-offs. Venezuela would lose control over its monetary policy and exchange rate, while its supply of dollars would depend on exports, investment, remittances, or external borrowing. 

Dollarization would not by itself guarantee fiscal discipline, revive oil production, restore credit markets, or attract investment.