Venezuela’s Troubled Economy Needs Dollarization

By Moises Rendon

Venezuela has the highest inflation rate in the world, with an estimated annual rate of as much as 700 percent as of this October. The Venezuelan economy is also due to shrink at the world’s highest rate this year – about 10 percent, according to the International Monetary Fund (IMF). With high inflation and a shrinking economy, Venezuela is facing one of the worst economic crises in the world, and a solution is urgently needed.

The Bolívar, Venezuela’s currency, has lost its credibility among Venezuelans, and is viewed with even less respect abroad.  An alternative is needed to reset the Venezuelan economy, improve trust, and provide a reliable store of value. Dollarizing the Venezuelan economy is a compelling possibility.

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The current Venezuelan administration is one of the worst in the world when it comes to economic and monetary management. Each year Steve Hanke, a John Hopkins Professor and Cato Institute scholar, assembles a Misery Index – an economic indicator that takes into account inflation, lending rates, unemployment rates, and year-on-year per capita gross domestic product (GDP) growth. It assumes that both a higher rate of unemployment and a worsening of inflation create economic and social costs for a country. The Misery Index is used to construct a ranking for 108 countries. For 2014, Venezuela holds the top spot in the world with an index value of 106.03, considerably higher than the next worst country on the list. Continue reading