Where the bolívar stands in August 2026, where the economy has to be by 2031, and the sequence of policies that gets it there without asking the state to do the investing.
The 2013 paper argued that a parallel exchange rate with import controls has no steady state unless the public sector's dollar surplus can finance the imports that keep money growth at zero. Its punchline was a choice: either an economic transition out of price controls and foreign-exchange controls, or hyperinflation. The worst case is what happened. Hyperinflation ran from late 2017 to 2021, the economy shrank by roughly three quarters, close to 80%, and nearly eight million Venezuelans left the country. After that decade there is a new opportunity to do right by the Venezuelan economy.
This piece states the case and the policy proposal. Section 1 shows where the country stands in August 2026. Section 2 argues that the state's job is to restore the legal framework for a private-capital-led economy in the major sectors, oil, electricity, finance and property, and to balance its own books, while private investors do the investing; the debt, fiscal, inflation and exchange-rate paths that follow are shown against explicit assumptions. Section 3 lays out the sequence.
With a sensibly sequenced policy it is very feasible to stabilise the economy. The key to recovery lies in two things: debt sustainability, and a stable path to economic recovery. People confuse the medicine with the symptoms when they ask for dollarization, as if the magic wand of switching to the dollar would cure the deep debt and the fiscal imbalances of the broken state-led model that crippled Venezuela. The medicine is strong institutions and a privately led recovery. That can later lead to dollarization as a way never again to fall into hyperinflation and fiscal imbalance, but dollarization has its own perils and guarantees nothing on its own. In short, Venezuela needs a legitimate, stable government that can lead a new regulatory framework and create the conditions for a privately led recovery.
The proposal, developed in Sections 2 and 3: the state restores legitimacy, the legal framework for oil, electricity and property rights, and fiscal balance; private capital does the investing; public debt is exchanged, not expanded; the central bank stops financing the treasury; and the bolívar is floated once the market has already unified it. The chart shows what that path looks like.
Eight indicators for August 2026, then four charts that carry the paper's argument to today. All values are in constant 2021 bolívares digitales so the three reconversiones (÷1,000 in 2008, ÷100,000 in 2018, ÷1,000,000 in 2021) do not break the lines.
Bs.D per USD, log scale. Solid amber: the main official rate (CADIVI → CENCOEX/DIPRO → DICOM → BCV). Thin dashed: the most depreciated legal window when several coexisted (SITME, SICAD II, SIMADI, DICOM). Blue: the parallel market.
Top: premium = parallel/official − 1, log scale on 1 + premium. Bottom: fiscal balance, % of GDP, annual. The paper's Figure 16 paired these; the premium rose in every year the deficit was monetised.
Top: inflation, % year on year, log scale. Bottom: premium. In 2012 the imbalance showed up in the premium (large bolívar base, rationed imports, price controls). Since 2019 it shows up in inflation.
Top: base money growth and inflation, both % year on year, log scale. Middle: the bolívar base itself, in constant 2021 bolívares digitales on a log scale, so the three reconversiones do not break the line. Bottom: the same base in US dollars at the parallel rate, the measure that matters for the model: from $15–18 billion in 2010–12 to under $1 billion in 2017–21 and about $2 billion today. A 6% deficit monetised over a $2 billion base produces the inflation of a 20% deficit in 2012.
From state control to private enterprise.
As Section 1 showed, the root cause of the Venezuelan model of the chavista era was the mismanagement of the economy: an irresponsible Banco Central de Venezuela that printed money to cover the state's deficits while running an equally irresponsible Kangaroo peg, an official rate held fixed and then jumped whenever the reserves ran out. The evidence is in the charts above. Base-money growth and inflation moved almost one for one for twenty years, the official rate was devalued seven times in a decade without ever catching the parallel rate, the premium reached a million percent, inflation reached 130,000%, and the economy lost three quarters of its output. That is the cause, and dollarization is not the solution to it. Dollarization removes the printing press without removing the deficit that fed it; a state that cannot balance its books in bolívares will not balance them in dollars, and the model in Section 3 shows its dollar position running out in three years. The solution is to remove the cause: a central bank that no longer finances the treasury, a state that no longer runs the deficit, and an economy that no longer depends on the state to invest.
The key to recovery lies in two things: debt sustainability, and a stable path to economic recovery. People confuse the medicine with the symptoms when they ask for dollarization, as if the magic wand of switching to the dollar would cure the deep debt and the fiscal imbalances of the broken state-led model that crippled Venezuela. The medicine is strong institutions and a privately led recovery. That can later lead to dollarization as a way never again to fall into hyperinflation and fiscal imbalance, but dollarization has its own perils and guarantees nothing on its own. In short, Venezuela needs a legitimate, stable government that can lead a new regulatory framework and create the conditions for a privately led recovery.
The development model is therefore private-capital-led. The state restores legitimacy, the legal framework for oil, electricity and property rights, and fiscal balance; foreign direct investment, repatriated savings and privatisation buyers do the investing. Public borrowing is limited to liability management: exchanging old claims for new bonds. The debt exercise is about reaching a sustainable path, not about financing a state-led recovery.
So when people call for dollarization, what they are asking for is economic freedom: an economy led by free Venezuelans. That can be delivered on Benjamin Franklin's paper or on Simón Bolívar's. Which would they really prefer?
Two debt scenarios, both with the same reform programme. A: no haircut, every claim exchanged one for one into new-terms bonds. B: a 50% haircut on the same exchange, credible because it is backed by a legitimate government with the internal factions on board and by the new legal framework. Move the assumptions; every panel recomputes.
Public debt, % of GDP. Trading Economics history to 2025; scenarios A and B start from that last point and apply the exchange in 2026. The goal is under 100% with interest under 15% of revenue and gross financing needs the state can cover without net new borrowing.
Overall and primary balance, % of GDP. Oil revenue up, primary spending down, interest on the restructured debt after grace. Money printing stops when the overall balance is no longer negative.
Top: inflation. Bottom: premium. Green dotted: the target glide paths implied by the assumptions (inflation follows money growth less real growth, and any deficit not covered by borrowing forces money growth; the premium follows the fundamentals gap, which oil revenue and FDI dollars close and an unfinanced deficit reopens). Violet dashed: the Hausmann model's status quo and governance-package simulations from the August 2026 calibration.
Top: the exchange premium on a plain (not log) scale, year by year, under each path. Bottom: where the official rate could go in nominal terms from today's 806 Bs/USD, year by year to 2031, under the same paths. The rate axis is logarithmic only because the status-quo path runs into the millions; the premium axis is linear as requested.
Managed rate with controls → unification → float with bands. The float year is computed: the first year the premium is under 10% with no deficit to monetise, inside the end-2027 to latest-year window; it turns red if it has to be forced.
| Assumption | Value | Basis |
|---|
The paper's model reduces the whole regime to one comparison: the public sector's dollar surplus, z − gT, against the imports that keep money growth at zero, i*. In August 2026 the gap is about $5 billion a year and equals the fiscal deficit. Each stage below moves one term of that comparison. The order matters: without stage 1 there is no private capital for stage 2; without stage 3 the premium cannot stay compressed in stage 4; stage 5 is only declared once stage 4 has happened.
Scroll sideways to see the whole path.
The payoff of the sequence, month by month. Top: exchange premium. Bottom: bolívares per US dollar, official and parallel. Data to August 2026, then a projection guided by Section 2: the premium follows chart 3's target path (about 19% today, collapsing toward zero as the fundamentals gap closes, unified by the float year) with the Hausmann governance-package path in dashed violet; the official rate follows chart 3's inflation path under purchasing-power parity less the real appreciation typical of a stabilisation, calibrated so the 2027 average is about 1,200 Bs/USD, after which it moves around that level.