Venezuela debates formal dollarization amid hyperinflation

Venezuela is facing an intense debate regarding its monetary policy as the national currency, the bolívar, continues to lose purchasing power. With an annualized inflation rate near 465% and a 12-month cumulative variation exceeding 560%, the U.S. dollar has become the primary mechanism for savings and value storage for the population.

While the country has experienced informal or de facto dollarization since 2019, transitioning to full, formal dollarization presents significant technical and legal hurdles. Economist Aaron Olmos notes that official adoption would require the Central Bank of Venezuela to hold at least $8 billion in liquid foreign exchange to provide necessary market liquidity.

Furthermore, a constitutional reform would be required to amend Article 318, which establishes the bolívar as the national unit of account. The National Academy of Economic Sciences (Ance) has cautioned that full dollarization is not an automatic fix for economic failures, as it would deprive the state of its ability to conduct independent monetary and exchange rate policies.