Venezuela Should Dollarize.

What is happening in Venezuela is a reminder that the most important thing for a healthy economy is a stable currency. Venezuela increased its money supply by a factor of 4 in the past 2 years. The result has been an inflation rate which according to economist Steve Hanke is now 45% per month. Unstable currency creates massive economic and social problems. The solution is to dollarize the Venezuela economy and do away with its currency. Having socialist, anti-American governments for so long makes this difficult. In 2009, then-President Hugo Chávez scorned the dollar as “paper without backing.” Right idea, wrong currency. Expensive things such as real estate and automobiles are now sold in dollars. The wealthy have access to dollars and the poor are being crushed by holding and earning a currency losing 45% of its value every month.

Despite the rhetoric the U.S. is still Venezuela’s main source of imports but without a stable currency in the hands of Venezuelan consumers U.S. companies there are losing money.

While the biggest source of Venezuela’s problems is the decline in revenue from oil exports, the lack of a stable domestic currency makes the problem worse.

Venezuela should dollarize its economy for the benefit of its citizens. Three of the four most health economies in Latin America are Panama, El Salvador, and Ecuador. Each of those 3 countries have already done away with their previous currency and dollarized their economy.