By Lina Irawan 
Venezuela, a country once boasting the largest proven oil reserves in the world, has been mired in an unprecedented economic catastrophe for years. Its current inflation rate, hovering around 400% according to the original report, is a stark indicator of a currency in freefall and an economy in disarray. While this figure is alarmingly high, it actually represents a significant decrease from the hyperinflationary peaks observed in previous years, where rates soared into the millions, sometimes even reaching the hundreds of millions of percent annually. The bolivar, the national currency, has become virtually worthless, with its value plummeting 78% against the U.S. dollar in the past year alone. This catastrophic depreciation has decimated purchasing power, eroded savings, and pushed millions into poverty, triggering one of the largest refugee crises in modern history.
Hanke’s proposed solution for Venezuela is uncompromising: full adoption of the U.S. dollar. This entails not just widespread use, but the complete abandonment of the bolivar and the closure of the central bank. The core rationale behind this radical move, Hanke explained to Shawn Tully of Fortune, is to eliminate the primary driver of Venezuela’s rampant inflation: the government’s ability to print money to finance its expenditures. By removing the central bank as a source of domestic currency, the government loses its capacity to create money out of thin air, thereby cutting off the inflationary spiral at its root. "Taming inflation is the key to restoring stability in Venezuela, and all the other progress flows from that," Hanke asserted. "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."
The "Money Doctor’s" track record lends significant weight to his recommendations. His expertise is not merely theoretical; it is forged in the crucible of real-world economic crises across diverse geopolitical landscapes. In 1999, Hanke famously persuaded Montenegro, then still part of a diminished Yugoslavia, to unilaterally dump the hyperinflating Yugoslav dinar in favor of the German Deutschemark. This bold move provided instant monetary stability in a region reeling from conflict and economic uncertainty, allowing Montenegro to establish a foundation for its eventual economic growth and independence. The success of this swift transition demonstrated the immediate stabilizing effect of adopting a hard currency.
A year later, in 2000, Hanke oversaw Ecuador’s monumental switch from its collapsing sucre to the U.S. dollar. Ecuador had been grappling with a severe economic crisis characterized by widespread banking failures, massive currency depreciation, and soaring inflation. The decision to dollarize was controversial, as it meant surrendering monetary sovereignty, but it proved to be a critical turning point. The move brought immediate price stability, restored confidence in the financial system, and laid the groundwork for sustained economic recovery. It marked the first instance of full dollarization in Latin America since Panama adopted the U.S. dollar nearly a century earlier, serving as a powerful regional precedent.
Hanke’s experience also extends to Africa. In 2009, he became an informal advisor to the prime minister of Zimbabwe, a country that had endured perhaps the most extreme hyperinflation of the 21st century, with official annual rates once reaching hundreds of billions of percent. Zimbabwe’s subsequent dollarization, though initially informal, successfully reined in inflation and stabilized the economy. However, this success was tragically short-lived. A new government, seeking to regain monetary policy tools and possibly extract seigniorage (the profit made by a government by issuing currency), controversially ditched the dollar in 2013, attempting to reintroduce a domestic currency. The consequence was predictable and devastating: hyperinflation returned with a vengeance, illustrating the critical importance of sustained commitment to a stable monetary anchor.
For Venezuela, this isn’t Hanke’s first attempt to influence its monetary policy. In the mid-1990s, he proposed a currency board for the country, a system where the domestic currency is fully backed by a foreign reserve currency at a fixed exchange rate. While a currency board offers a strong commitment to monetary stability, it is a step short of full dollarization, as it retains a domestic currency. Hanke’s plan, however, failed to win a majority in the National Assembly at the time, a missed opportunity that arguably paved the way for the subsequent economic deterioration. This time, armed with decades more experience and facing a far more desperate situation, Hanke expresses cautious optimism, assigning 50% to 80% odds that full dollarization will be approved. Should it pass, he told Fortune’s Tully, "It would be the biggest switch from domestic currencies to an alternative since the introduction of the euro in 1999," underscoring the monumental scale of the proposed undertaking.
A key factor bolstering Hanke’s optimism is the widespread "spontaneous dollarization" that has already taken root in Venezuela. Due to the bolivar’s utter collapse, the U.S. dollar has become the de facto currency for everyday transactions for a vast majority of the population. Most consumers buy virtually everything with dollars, from groceries to gasoline. In fact, almost everyone not working directly for the government or receiving state aid and pensions now relies on dollars to conduct their economic lives. This organic, market-driven adoption of the dollar means that an official currency switch would be less of a disruptive shock and more of a formal recognition of existing economic realities. It significantly lowers the logistical hurdles and public resistance typically associated with such a dramatic monetary overhaul.
Despite the compelling arguments and Hanke’s successful track record, dollarization is not without its significant obstacles and critics. The most prominent concerns revolve around the loss of monetary sovereignty. Adopting the U.S. dollar means surrendering control over monetary policy to the U.S. Federal Reserve. Venezuela would lose the ability to print money, conduct independent interest rate policy, or act as a lender of last resort to its banking system in times of crisis. This last point is particularly daunting: without a central bank capable of injecting liquidity, domestic banks facing a run could collapse, potentially triggering a financial meltdown with no national safety net. Critics argue that this relinquishment of crucial policy tools could leave the country vulnerable to external shocks and limit its ability to respond flexibly to economic downturns.
The recent experience of Argentina serves as a pertinent cautionary tale, highlighting the complexities and political challenges of implementing such radical reforms. Argentine President Javier Milei, a self-proclaimed "anarcho-capitalist" economist, campaigned heavily on a platform of dollarization. However, after taking office, he significantly backed off the idea, acknowledging the immense practical difficulties. Implementing dollarization in Argentina would require acquiring tens of billions of dollars in reserves to redeem pesos, navigating complex legal and logistical frameworks, and overcoming potential public and political resistance to such a dramatic shift. While Milei has managed to sharply cool Argentina’s inflation through aggressive fiscal austerity and budget cuts, the annual rate remains exceptionally high, and the country continues to grapple with currency instability. The peso, which is currently subject to a managed peg against the dollar, remains fragile. Regional elections last year, which saw Milei’s party suffer significant setbacks, sent the peso into a tailspin, requiring intervention from U.S. Treasury Secretary Scott Bessent through a crucial currency swap line, underscoring the ongoing vulnerabilities even with less extreme measures than full dollarization.
Nevertheless, Hanke remains steadfast in his conviction that dollarization is the singular key to unlocking Venezuela’s immense economic potential. He foresees a cascading series of positive effects. First and foremost, a stable currency would induce a significant surge of foreign direct investment (FDI), particularly into Venezuela’s vital oil sector. With reduced currency risk and the promise of predictable returns, international investors would be far more willing to commit capital to exploit the country’s vast crude reserves, which have been severely underutilized due to political instability and economic chaos.
The revitalization of the oil sector would, in turn, address Venezuela’s crushing $250 billion debt, equivalent to approximately 150% of its GDP. Hanke predicts that increased oil production would generate the necessary dollar revenues to service both the principal and interest payments, gradually bringing the country back into financial good standing with international creditors.
Beyond the oil sector, the end of hyperinflation would dramatically lower interest rates across the board. The removal of inflation risk premium would make borrowing far cheaper, encouraging a wave of new credit for consumers and businesses. This accessibility to affordable capital would ignite the housing market, spur domestic investment in various industries, and drive overall economic activity. "If it happens soon," Hanke concluded with characteristic directness, "Venezuela would take off from negative growth this year to positive growth next year."
Hanke’s vision for Venezuela is ambitious and fraught with political and economic challenges. Yet, given the depth of the crisis, the "Money Doctor’s" radical prescription may represent the most viable path towards stability and recovery, offering a glimmer of hope for a nation long trapped in an economic nightmare. The world will be watching to see if Venezuela’s National Assembly is prepared to take this monumental leap of faith.
