Venezuela Should Switch to the Dollar, as Ecuador Did 26 Years Ago
On October 8, Delcy Rodríguez ruled out the dollar. Opening the annual assembly of Venezuela’s business chambers, the acting president called for a stronger bolívar instead and insisted that “monetary sovereignty is essential for economic growth.”
Caracas Is Defending the Bolívar
On October 8, Delcy Rodríguez ruled out the dollar. Opening the annual assembly of Venezuela’s business chambers, the acting president called for a stronger bolívar instead and insisted that “monetary sovereignty is essential for economic growth.”
Remember the “strong bolívar”? It was born when three zeros came off the old currency. The currency lost five more in 2018, when it became the “sovereign bolívar,” and six more in 2021, in a cut Rodríguez herself announced as vice president, for a total of 14 zeros since 2008. So much for monetary sovereignty, a euphemism for printing money.
The idea she rejected has been in the air since August, when a deputy, Antonio Ecarri, discussed with the American economist Steve Hanke how the dollar could replace the bolívar. Instead, on September 15, 2026, the BCV ordered all bank deposits in bolívars be remunerated at minimum rates with the explicit goal to encourage people to hold local currency.
Minimum interest rates have recently been raised from 0% on checking accounts, 32% on savings accounts and 36% on time deposits, to 10%, 42% and 46% respectively.
At 46% a year, a saver still earns less than 4% a month, while prices rose 8.4% in September alone. Who would keep savings in bolívars on those terms?
Quito, January 2000: A Country Gives Up Its Money
Ecuador’s savers faced rates below inflation too. Ninety-day deposits at private banks paid 47.7% a year in the last week of 1999, after prices had risen 60.7% over the year.
Unable to control inflation, Ecuador declared a surprise bank holiday one hour before opening time on March 8, 1999. The government then froze half of all sucre deposits and all dollar savings for a year. That year the economy shrank 4.7% and Ecuador became the first South American country in years to stop paying its foreign debt when it defaulted on its Brady bonds.
The sucre fell from 7,119 to the dollar in January 1999 to 18,287 in December and kept falling. President Jamil Mahuad finally gave up the sucre on January 9, 2000, at 25,000 to the dollar in order to stabilize the financial system and head off hyperinflation.
Savers were not amused. Sucres kept under a mattress since January 1999 bought less than a third as many dollars a year later. Mahuad was quickly removed from office in a military coup. General Carlos Mendoza, the armed forces chief of staff, then announced that Mahuad’s vice president, Gustavo Noboa, would take over.
However, Noboa kept the dollar and used it to enforce greater fiscal discipline. The law that followed fixed the rate at 25,000 and required the central bank to hold a dollar for every 25,000 sucres it owed. The IMF backed Noboa with a $304 million loan in April and tied the dollar’s lasting success to fixing the banks and the budget. By then, the run on the banks had stopped and deposits were coming back.
It took longer to stabilize prices which were still adjusting to the sucre’s earlier collapse. Yearly inflation was up 107.8% by September 2000, the highest rate in Ecuador’s history. After this initial move, inflation fell gradually to 7.9% in 2003. It has been under control ever since, and over two decades later, it is now hovering around 1%.
History has vindicated Mahuad and Noboa. Since Ecuador gave up its monetary sovereignty in 2000, the economy has more than doubled in real terms. Credit to companies and households grew from 19% of GDP in 2002 to 59% in 2025, by which time banks were writing home loans for up to 25 years.
Its Enemies Ended Up Defending It
Gutiérrez, who had opposed the dollarization of the economy, won the presidency in 2002. But, once in office, he too kept the dollar in place of the sucre.
Ecuador’s President from 2007 to 2017 and a former economics professor and an ally of Hugo Chávez, Rafael Correa was an even fiercer critic. With oil prices collapsing in January 2015, he called the dollar regime “a technically absurd barbarity that occurred in Ecuador after a terrible crisis” and complained that it kept his government from printing money. That was the point. In spite of these criticisms, Correa never abandoned the dollarization of Ecuador’s economy.
Ten years later, his party wanted the dollar written into the constitution. Its candidate for vice president in 2025, Diego Borja, had written a paper in 2000 on how to leave the dollar without dying in the attempt. Now he compared leaving to getting off a plane in mid-flight.
The dollar’s fiercest critics campaigned to protect it in 2025, with an election coming. The fact that support for it had risen from 32% in 2000 to 92% in 2023 may have something to do with it. More than two in five Ecuadorians have never used any other money.
Correa’s Lesson for Caracas
Dollarization does not, however, remove other risks. When oil income plunged in 2015 and the dollar strengthened against other currencies, Ecuador’s access to international financing was very limited. Growth fell from 4.2% in 2014 to a dismal 0.1%. Ecuador, which had no currency of its own left to devalue, put tariffs of 5% to 45% on about a third of imported products to protect its domestic industries.
Nor does it keep a government current on its debts. Correa refused in December 2008 to make a $31 million interest payment on bonds he said had been contracted illegally. Although Ecuador had the money to pay, he chose to default for the second time in a decade.
Nor does it keep a government’s hands off its central bank. By the time Correa swore to keep the dollar, he was already putting it at risk. Unable to print dollars, his government borrowed from the central bank, which keeps the dollars of banks, the social security bank and town halls. Convenient changes in the law made between 2009 and 2014 allowed it. Subsequently, the central bank’s dollar loans to the government reached 10% of GDP which prompted the IMF to warn that it endangered the financial system and, in the end, dollarization itself.
Ecuador has since moved to shut the government out of its central bank. A 2021 law set out to make it independent of the president. By June 2025, the monetary code expressly banned lending to the government.
Venezuela’s constitution also forbids its central bank to take orders from the government or to finance deficits (Article 320). The bolívar lost its 14 zeros all the same. Any new successful monetary system put in place will need a central bank independent enough to say no. Dollarization is a strong tool to combat inflation but it is no panacea. It still requires an independent central bank.
Why a Dollarized Economy Is Particularly Beneficial to Venezuela
One of the major problems with not fully dollarizing the Venezuelan economy comes from the gap between the official exchange rate and the parallel market. Insiders have for too long benefited from getting dollars from the central bank at the official rate, which were immediately sold on the market at a large premium. The central bank’s president said in May 2013 that $15 billion to $20 billion had gone the year before to imports that never happened.
Today, the gap between the official rate and the market rate is narrowing, down to around 15%. With Uncle Sam watching, insiders may also have a harder time getting access to cheap currencies, but this two-tier exchange rate invites speculation and corruption. At the same time, fully dollarizing the economy will not affect exports as much as it will stimulate internal demand. The bulk of exports are commodities, not the least oil and gas, whose prices are set globally and in dollars anyway.
Venezuela’s economy, based on commodities and strong internal demand, is bound to benefit from dollarization. Venezuela became wealthy in the oil boom of the 1920s. Easy money meant that the country skipped industrialization. Oil revenues were used to buy goods manufactured overseas. Still today, the oil industry accounts for 26% of the country’s GDP while manufacturing represents a paltry 7%. Devaluing the currency would thus not increase Venezuela’s overall competitiveness.
Unlike China, which manipulates its currency to boost its huge manufacturing industry, Venezuela’s exports of commodities would not benefit from such monetary policies. It would, on the other hand, reduce the buying power of an exceptionally high consumer sector.
China has built its economic miracle by becoming the world’s manufacturer but is now struggling with a lack of internal demand. That is not likely to happen to Venezuela where consumption has consistently been a major engine of the economy. According to the World Bank, household consumption accounted for a whopping 90.9% of Venezuela’s economy in 2020. Venezuelans make Americans look thrifty. Giving up bolívars in favor of the dollar would increase the buying power of the ubiquitous consumer and have no effect on exports of commodities or the growing service and technology sectors. It may put pressure on the small manufacturing sector but, if Venezuela gets serious about developing a manufacturing base, tariffs can be used to level the playing field.
A Dollar Zone in the Americas
Panama has used the dollar since 1904, Ecuador since 2000 and El Salvador since 2001. In 2025, inflation was below 1% in all three countries, with prices in Panama even down 0.2%. These countries, including Venezuela, could create a dollar zone in the Americas similar to the euro zone in Europe.
The greatest benefit of the euro has been to bring the cost of capital down in countries like Italy, Spain or France, all countries suffering from chronic inflation and regular devaluations. The euro brought some Teutonic monetary discipline to the unified currency which allowed for lower interest rates. However, many industrial companies paid the price of the newly found rigors. In Northern Italy, for example, many medium-sized companies could no longer compete with their German counterparts without the competitive advantage of a weak currency.
In a dollar zone, Venezuelan companies would equally benefit from lower interest rates. Tariffs could then be applied to protect the small industrial sector, an option which was not available to Italy due to the European single market.
The governor of each country’s central bank has a seat on the ECB’s Governing Council. By being represented on the council, European countries keep a semblance of monetary sovereignty. By contrast, in a dollar zone, monetary policy decisions would be taken unilaterally by the Federal Reserve. Caracas, like Quito, Panama City and San Salvador, would have no vote. Would Venezuelans accept that? Ecuadorians have, for 26 years.