November 27, 2020

Antelope

National Review

Finally, Maduro is Listening

On Monday, Bloomberg broke the news that Venezuela’s president Nicolás Maduro is inching toward official dollarization. He has ordered the Banco Central de Venezuela to engage in discussions with Venezuelan bankers on the modalities of creating a clearing and settlement system in U.S. dollars. Maduro, in a rare display of good judgment, is taking a necessary step toward what I have been advocating for many years: official dollarization in Venezuela. Indeed, I first proposed this when I was President Rafael Caldera’s chief adviser in 1995.Unlike the opposition leader Juan Guaidó, who has been recognized as interim president by the United States, the European Union, and others, Maduro has finally received the message about the only way to stop Venezuela’s hyperinflation immediately. If he continues on this path, he will smash hyperinflation and remain in the saddle.Venezuela’s bolivar is worthless, and its annual inflation rate is the world’s highest. I measure it every day, and today it is 2,156 percent per year. Not surprisingly, Venezuelans get rid of their bolivars like hot potatoes and replace them with U.S. dollars. So, Venezuela is, to a large extent, unofficially dollarized.To stop Venezuela’s death spiral, it must officially dump the bolivar and adopt the greenback. Official “dollarization” is a proven elixir. I know because I operated as a state counselor in Montenegro when it dumped the worthless Yugoslav dinar in 1999 and replaced it with the Deutsche mark. I also watched the successful dollarization of Ecuador in 2001, when I was serving as an adviser to the minister of economy and finance.Countries that are officially dollarized produce lower, less variable inflation rates and higher, more stable economic growth rates than comparable countries with central banks that issue domestic currencies. There is a tried-and-true way to stabilize the economy — a necessary condition before the massive task of life-giving reforms can begin. It is dollarization. Stability might not be everything, but everything is nothing without stability.Just what does the Venezuelan public think of the dollarization idea? To answer that question, I commissioned a professional survey of public opinion that was conducted in March 2017 by Datincorp in Caracas. The results were encouraging. At that time, 62 percent of the public favored dollarization. Today, since more than 80 percent of transactions in Venezuela take place in U.S. dollars, it doesn’t seem unreasonable to think that the approval rating would now exceed 80 percent. So, it’s not surprising that Maduro has embraced the dollarization idea. After all, the public already does.But, the question I am repeatedly asked is: How do you officially dollarize a place such as Venezuela? To do that, you need a dollarization law. I have drafted such a model law. The model statute is meant to suggest the main features that are desirable for a law on dollarization. Legal technicalities may require an actual statute to be somewhat different.A Model Dollarization Statute For Venezuela 1. The Banco Central de Venezuela shall cease to issue Venezuelan bolivars except as

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