Venezuela Poised to Abandon Bolivar for US Dollar

Venezuela may be on the cusp of abandoning its bolivar currency in favor of the US dollar, according to economist Steve Hanke. As a special advisor to Venezuela's National Assembly, Hanke estimates a 50% to 80% probability of official dollarization being approved.

The move would be the largest currency switch since the euro's introduction in 1999 and would involve scrapping the bolivar and dismantling the central bank. Hanke, known as the 'Money Doctor,' has previously guided Montenegro, Ecuador, and Zimbabwe through currency transitions.

Hanke argues that dollarization would attract foreign investment into Venezuela's oil sector, generate revenue to service its $250 billion in debt, and lower interest rates. He also notes that most Venezuelans already use dollars for everyday transactions due to the bolivar's 78% loss of value against the dollar over the past year.

However, Hanke acknowledges that abandoning the central bank means forfeiting a lender of last resort and outsourcing monetary policy to the Federal Reserve. This has proven difficult for other nations to swallow, as seen in Argentina's experience with dollarization.