Dollarize: will it be the answer to the crisis in Venezuela?

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Many citizens propose that measure as a possible relief to control the runaway hyperinflation and the devaluation of the bolivar. Would it do?

“And why don’t they dollarize Venezuela at once?” There are many citizens who, in the streets, repeat the question frequently. They cry out for the US currency as an immediate solution to the ailing economy but that recipe is, according to experts, far from being a magic wand and it comes loaded with inconveniences.

The example of Ecuador, which adopted the dollar and renounced the sucre in 2000, is repeated as a model for a Venezuela ravaged by hyperinflation, the devaluation of the sovereign bolivar and in which public accounts are a real mystery within the institutional chaos, as they are not made under the premise of light and stenographers.

Of course, and always playing politics fiction, if a Venezuelan government wanted to adopt this measure, it would have to circumvent, in the first place, the strict sanctions imposed by the United States that prevent anyone from thinking that any politician in the Caribbean country can take such a measure today .

However, the economist Ronald Balza, a professor at the Central University of Venezuela (UCV), warns: “The dollar is being attributed the property of correcting institutional problems that are causing this exchange rate and monetary instability that we are experiencing.”

“Putting the discussion in which dollarization would help us solve the problems is to leave all the problems alive, it is to attribute to the dollar a magical power that it does not have, while the government continues to do what it wants with public resources,” he says.

Balza considers that, First, the structural problems of the Venezuelan economy and institutions must be addressed.. If this is not done, the risk when dollarizing is only to cover them, but not to solve them.

In his opinion, it is like having “a wall that is leaking water”, then the decision is made to paint and cover that problem.

“Dollarizing is like painting the wall, it is not solving the problem that is, probably, a pipe that is leaking water,” he says.

The director of Ecoanalítica, Asdrúbal Oliveros, agrees to a large extent and focuses the problem on the institutional context, “the destruction of the price system, the production system and the absence of competition” that ends up causing costs, even if they are denominated in dollars, go up.

This is one of the realities that Venezuela lives today, a de facto dollarization -transactional, Oliveros qualifies- for which almost all prices are displayed in US currency, even in popular areas, although the vast majority of invoices are issued in bolivars by legal mandate.

“Not because the dollar is assumed, if you do not change the institutional context in which the economy operates, the problem will necessarily disappear and you will begin to have a significant recovery in purchasing power,” he says.

Therefore, he explains that currencies “work tied to an institutionality” and have no power by themselves.

“The dollar works in countries where it has a solid institutional framework. If you go with dollars to Kabul or an enclave of the jihadist group ISIS, the situation of the purchasing power of the dollar is probably very different from using it in New York, Lima or Caracas itself “, Explain.

Oliveros also explains that one of the effects of adopting the dollar is that it subjects public management “to a situation of a great deal of control because part of the State’s expenses that the dollar assumes are limited to circulating” in that currency.

When the State loses the ability to issue currency, “it has to be adjusted according to the flow of dollars that is entering the economy.”

All of this translates into “imposed discipline”, a kind of “straitjacket”, since “the room for maneuver is reduced” by not being able to issue currency.

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