Pedro Palma, Venezuelan economist, and director of the consulting firm Ecoanalítica He spoke about the de facto dollarization in Venezuela, and explained what its advantages and disadvantages would be within the Venezuelan economy.
According to Palma, among the advantages of dollarization are the moderation of inflation over time, reduction of exchange rate inflation, the creation of favorable conditions for stimulating investment, and the generation of confidence.
As for the disadvantages, Palma mentioned that the adoption of the dollar would imply limitations on the part of the statethe minimization of the possibilities of the Central Bank to act as a lender, the impossibility of the state to apply exchange policy measures and the loss of seigniorage, that is, the debacle of sovereignty due to the impossibility of the ruler to issue money.
In this sense, the economist addressed that The most convenient and effective way to face the nation’s inflationary problem was by cleaning up the economy and creating better conditions that would allow it to face external adversities.. “Without falling into the rigidities of dollarization, which is difficult to get out of once its use is adopted”Palma mentioned.
That said, lastly, it is important to point out the Venezuelan context of inflation, which according to the Venezuelan Finance Observatory (OVF) for September this year it reached 11.5% per month, generating an inflation of 157% in year-on-year inflation, and 111.8% in accumulated inflation. Regarding dollarization, only in the five municipalities of the Metropolitan area of Caracas for February of this year, 99.2% of merchants think to set their prices in dollars, this data would perhaps imply a reflection of the general reality throughout the national territory.
Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information set forth herein should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
It may interest you:
Investments in crypto assets are not regulated. They may not be suitable for retail investors and the full amount invested may be lost. The services or products offered are not aimed at or accessible to investors in Spain.