Daniel Raisbeck is an independent policy analyst
Eric Graf writes for Spain’s ABC. He has published numerous books on Spanish Golden Age Literature
As the Chávez-Maduro nightmare comes to an end in Venezuela, the country has a rare chance to tilt the odds of long-term prosperity in its favour. This requires two measures that can be taken even before elections take place: full dollarisation and subsoil privatisation.
Venezuela, like Argentina, is the poster child for why Latin American countries do not need their own currencies. Even “independent” central banks tend to cause more inflation than necessary in the best of cases. In Venezuela’s worst-case-scenario, a politicised central bank destroyed the currency after Chávez seized its control in 2007.
A decade of monetised deficits and forced devaluations left annual inflation at 65,000 percent in 2018. Street vendors wove handicrafts from worthless bolívar banknotes. Eight million Venezuelans fled; the richest Latin American country of the 1970s became poorer than Haiti.
Opposition leaders now plan to make the central bank independent. This is sound in theory; even a mildly competent technocracy would be a vast improvement over Chavista misrule. But politicians should recall that Venezuela suffered from triple-digit inflation just two years before Chávez won the 1998 election. If Venezuela holds a national currency, renewed monetary chaos remains possible. So why not choose the tried and tested, best-in-breed option?
Full dollarisation is the best alternative. According to World Bank data, the three major Latin American countries with the lowest inflation rates from 2004 to 2024—Panama, Ecuador, and El Salvador— are dollarised. Ecuador dollarised in 2000 and reduced an annual inflation rate of nearly 100 percent to single digits in less than three years (at a faster pace than Argentina’s current, exchange rate-led experiment, and without lifelines from the U.S. Treasury).
Panama, dollarised since 1903, became a low-inflation, international financial center without a central bank and without legal tender. Panamanians will choose the U.S. dollar if they remain confident in its properties as a medium of exchange, store of value, and unit of account. There is no government-enforced monopoly.
Dollarisation works because it permanently removes a government’s ability to print money. The immediate benefits are low inflation, a strong currency (in the fiat realm), and minimal currency risk for foreign investors. Most importantly, it provides insulation from reckless politicians. Ecuador’s Rafael Correa, a Chávez ally, was unable to de-dollarise and print money despite ruling for a decade with few limits on his power. The dollar remained more popular than the caudillo.
In Venezuela, the urgency is political. Abolishing the central bank benefits the people but, even in democracies, stakeholders have little incentive to do so. Bureaucrats are drawn to a central bank’s prestige; politicians like the illusion of control; intellectuals falsely equate a national currency with national sovereignty. This is why Venezuela, which is de facto dollarised, should shut down its central bank and dollarise officially while the current, “interim“ government remains in place.
Monetary stability, however, is only half the solution. The state’s ownership of the subsoil has been the other main driver of Venezuela’s downfall. This allowed the Chavista regime to destroy the oil industry in the country with the world’s largest reserves. Chávez filled PDVSA, the state-owned oil company, with cronies and subsidised Cuba’s energy needs. His 2001 hydrocarbons law chased away efficient foreign operators. Production plummeted as profits flowed into a political slush fund.
The American model of private mineral rights provides a contrary example of success. In Texas, the privatised framework decentralised risk in the 1980’s and 90’s, giving a direct profit incentive to the landowners and wildcatters who risked their own capital to experiment with new drilling techniques. This unleashed the shale revolution the following decade. Such breakthroughs are unlikely under bureaucratic and risk-averse state-owned monopolies, even if managed responsibly.
Subsoil privatisation also decentralises economic and hence political power. Texas is so strong vis-à-vis the Washington-New York corridor that Dallas recently launched a national securities exchange. This dynamic is absent under Latin America’s state-controlled model, in which mineral wealth flows from the periphery to a country’s capital to be redistributed—or squandered—at politicians’ whim.
Yet private mineral rights work in Texas because the state found the ideal regulatory framework. Oil drilling is subject to the “tragedy of the commons,” whereby competing neighbors rapidly drain underground reserves that flow through property boundaries. After the industry’s near collapse in the 1930’s, the Railroad Commission of Texas (RRC) has regulated the market successfully with production limits, spacing mandates between wells, and maximum efficient extraction rates for each reservoir. Sound regulation made oil a stable asset class with predictable cash flows and proven reserves that could serve as collateral. Inspired by the system’s efficacy, Venezuelan diplomat Juan Pablo Pérez Alfonzo used it as the blueprint for OPEC, a transnational version of the RRC.
Venezuela should now privatise its subsoil and turn PDVSA into an RRC-type neutral regulatory body. Its commercial assets can be distributed to citizen-shareholders via vouchers. The state’s remaining subsoil interests can be auctioned, with proceeds transferred to all Venezuelans via individual retirement accounts. Public lands can be opened to homesteaders. Current landowners can negotiate for mineral rights beneath their property.
As Venezuela moves away from socialist tyranny, dollarisation and regulated subsoil privatisation would provide strong pillars for the new republic. Venezuela was already among the world’s richest countries in the mid-20th century. Under the right monetary and mineral rights framework, that feat can become permanent.