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Venezuela’s National Assembly is actively debating how to end the world’s highest inflation rate and retire the bolivar, the world’s worst-performing currency. One of the authors advises against this approach directly. The discussion about solving Venezuela’s bolivar-inflation problem has intensified.
While Peru’s system has performed well due to unique political and institutional factors, it is not easily replicable in Venezuela. Peru’s monetary regime, introduced in 2002 after hyperinflation and economic collapse, has maintained inflation within a 1%-3% target range, with only four exceedances in 24 years, three of which occurred during COVID-19. This success stems from a combination of interest-rate policy, foreign-exchange intervention, large precautionary reserves, and a dual monetary system where the sol and U.S. dollars coexist legally.
The Peruvian central bank (BCRP), led by Julio Velarde since 2006, combines macroprudential measures and reserve requirements to stabilize the economy. However, Peru’s system is unique due to its institutional foundations, including a technocratic continuity in the Ministry of Economy and Finance, and a long history of rule adherence despite political instability. Venezuela, however, faces systemic issues like populism and fiscal dominance that make rule adherence difficult.
The article concludes that Venezuela should adopt the U.S. dollar as legal tender to achieve stability, as no dollarized system has ever failed.
Source: Fortune
