Steve Hanke, the Johns Hopkins University economist known as the “Money Doctor” for his track record of taming runaway inflation, is betting that Venezuela is on the verge of abandoning the bolivar entirely in favor of the U.S. dollar. As a newly named special advisor to Venezuela’s National Assembly, Hanke has put the odds of official dollarization being approved at 50% to 80%.
The stakes are enormous. If Venezuela formally adopts the greenback, it would represent the largest currency substitution since the euro’s introduction in 1999, Hanke told Fortune’s Shawn Tully. The move would mean scrapping the bolivar and dismantling the central bank, eliminating the risk that monetary authorities print money to finance government spending and reignite price surges.
“Taming inflation is the key to restoring stability in Venezuela, and all the other progress flows from that,” Hanke said. “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.”
Venezuela is currently grappling with inflation running at roughly 400% annually. The bolivar has lost 78% of its value against the dollar over the past year alone, pushing most consumers to conduct everyday transactions in U.S. currency. Hanke describes this phenomenon as “spontaneous dollarization,” noting that nearly everyone outside of government employees and recipients of state aid or pensions already operates in dollars.
Hanke’s credibility in currency reform is well established. In 1999, he persuaded Montenegro to abandon the Yugoslav dinar for the Deutschemark. A year later, he oversaw Ecuador’s transition from the sucre to the U.S. dollar, the first dollarization in Latin America since Panama adopted the greenback a century earlier. In 2009, he served as an informal advisor to Zimbabwe’s prime minister when the country dollarized to crush hyperinflation, though a subsequent government reversed course in 2013 and prices spiraled out of control again.
This marks Hanke’s second attempt at fixing Venezuela’s monetary system. His mid-1990s proposal for a currency board failed to secure a majority in the National Assembly. Now, with the country’s economy in shambles and informal dollarization already widespread, he sees a much more favorable political landscape.
Still, the path to full dollarization faces significant headwinds. Abandoning the central bank means forfeiting a lender of last resort and effectively outsourcing monetary policy to the Federal Reserve. That loss of sovereignty has proven difficult for other nations to swallow. Argentine President Javier Milei campaigned on dollarization but backed away from the idea after taking office, opting instead for austerity measures that slashed subsidies and the budget deficit. While Milei’s approach cooled inflation sharply, annual price growth remains elevated.
Argentina’s experience also underscores the vulnerabilities of a dollar-linked system. The peso remains pegged to the greenback, and regional elections last year that crushed Milei’s party sent the currency into a tailspin. Treasury Secretary Scott Bessent intervened with a currency swap line to stabilize the situation.
Hanke, however, maintains that dollarization is the key to unlocking Venezuela’s oil-dependent economy. A formal currency switch would trigger a surge of foreign investment into the energy sector, he predicts. That increased production would generate the dollars needed to service Venezuela’s $250 billion in debt, equivalent to roughly 150% of GDP.
The end of hyperinflation would also push interest rates lower, Hanke argues, encouraging borrowing by consumers and businesses alike. That credit expansion would ignite the housing market and drive domestic investment. “If it happens soon, Venezuela would take off from negative growth this year to positive growth next year,” he said.
The table below summarizes Hanke’s track record of currency interventions:
YearCountryCurrency SwitchOutcome1999MontenegroYugoslav dinar to DeutschemarkInflation brought under control2000EcuadorSucre to U.S. dollarFirst Latin American dollarization since Panama2009ZimbabweZimbabwe dollar to U.S. dollarHyperinflation reined in2013ZimbabweReversed dollarizationHyperinflation returned
Note: Hanke served in advisory roles of varying formality across these cases.
For Venezuela, the timing could prove critical. The longer the National Assembly deliberates, the more entrenched the current crisis becomes. But the political calculus remains complicated: ceding monetary control to Washington is a difficult sell for any sovereign nation, even one whose citizens have already voted with their wallets by abandoning the bolivar in daily life.