- Ethiopia’s PM pledged a “final and conclusive” offensive against rebels in Tigray before the end of the week, which will certainly worsen the humanitarian crisis in northern Ethiopia.
- Belarus has now endured 100 days of protests after Pres. Lukashenko’s sham reelection in August, with no end in sight.
- Bloomberg reported that Pres. Maduro is considering officially dollarizing Venezuela in order to tame hyperinflation (Venezuela is already effectively dollarized because its own bolivar is essentially worthless). An op-ed in the conservative National Review supports official dollarization and includes some suggestions for how to proceed with it.
- The U.S. Justice Department now wants to drop drug-trafficking charges against Salvador Cienfuegos Zepeda, who used to be Mexico’s defense secretary and now stands accused of taking bribes to protect the H-2 cartel. The U.S.’s rationale in dropping the charges is to allow Mexico to prosecute Zepeda.
- China launched the world’s first 6G satellite into orbit last week—just one year after announcing it was going to fund the project. South Korean firms LG and Samsung are also looking into 6G, as are Apple and Google. The greatest benefit of 6G will be a significant increase in transfer speeds; however, 6G requires base stations every 200 meters.
- A U.S.-made F-16 crashed during a training mission in Taiwan yesterday, and Taiwan grounded its whole fleet of 140 F-16s (about half of Taiwan’s total fighter fleet). I wonder if China will step up its incursions into Taiwanese airspace now that half of Taiwan’s fighter fleet is grounded and can’t intercept Chinese jets.
- Hong Kong arrested three former opposition lawmakers for disrupting legislative meetings by tossing pungent liquids and other items around in the main legislative chamber.
- Libya’s GNA confirmed that it plans to hold presidential and parliamentary elections on Dec. 24th 2021, “whether the [Libyan] parties agree or not.” That raises questions about how much agreement they actually found with Haftar’s representatives during talks last week in Tunis.
- Pres. Trump fired the top U.S. cybersecurity official after he declined to confirm Trump’s allegations of voter fraud.
- Right after the U.S. announced plans to pull ~1,000 troops out of Iraq, four rockets struck the Green Zone.
- Iran’s Foreign Minister invited the U.S.—after Pres.-elect Biden is inaugurated in January—to rejoin the nuclear deal and lift sanctions on Iran. Unlike other Iranian leaders, FM Zarif did not insist on any financial compensation from the U.S. for “damages” due to sanctions.
- Peru swore in a new president, centrist Francisco Sagasti, and Pres. Sagasti seemed to say and do all the right things in his first speech as president: he commemorated two men who died during protests and pledged to restore trust in government.
- North Macedonia changed its name in February to appease Greece so it could enter the EU; now Bulgaria is blocking its EU membership because it doesn’t want North Macedonia to refer to a “Macedonian language” in EU documents (Bulgaria insists that Macedonian-speakers actually speak a derivation of Bulgarian).
Finally, Maduro is Listening (National Review)
Venezuela’s Maduro has realized that official dollarization is the only way to curb hyperinflation. Here’s a blueprint for how he should proceed.
Author: STEVE H. HANKE is a professor of Applied Economics at the Johns Hopkins University in Baltimore. He is a senior fellow and director of the Troubled Currencies Project at the Cato Institute in Washington, D.C.
On Monday, Bloomberg broke the news that Venezuela’s president Nicolás Maduro is inching toward official dollarization. He has ordered the Banco Central de Venezuela to engage in discussions with Venezuelan bankers on the modalities of creating a clearing and settlement system in U.S. dollars. Maduro, in a rare display of good judgment, is taking a necessary step toward what I have been advocating for many years: official dollarization in Venezuela. Indeed, I first proposed this when I was President Rafael Caldera’s chief adviser in 1995.
Unlike the opposition leader Juan Guaidó, who has been recognized as interim president by the United States, the European Union, and others, Maduro has finally received the message about the only way to stop Venezuela’s hyperinflation immediately. If he continues on this path, he will smash hyperinflation and remain in the saddle.
Venezuela’s bolivar is worthless, and its annual inflation rate is the world’s highest. I measure it every day, and today it is 2,156 percent per year. Not surprisingly, Venezuelans get rid of their bolivars like hot potatoes and replace them with U.S. dollars. So, Venezuela is, to a large extent, unofficially dollarized.
To stop Venezuela’s death spiral, it must officially dump the bolivar and adopt the greenback. Official “dollarization” is a proven elixir. I know because I operated as a state counselor in Montenegro when it dumped the worthless Yugoslav dinar in 1999 and replaced it with the Deutsche mark. I also watched the successful dollarization of Ecuador in 2001, when I was serving as an adviser to the minister of economy and finance.
Countries that are officially dollarized produce lower, less variable inflation rates and higher, more stable economic growth rates than comparable countries with central banks that issue domestic currencies. There is a tried-and-true way to stabilize the economy — a necessary condition before the massive task of life-giving reforms can begin. It is dollarization. Stability might not be everything, but everything is nothing without stability.
Just what does the Venezuelan public think of the dollarization idea? To answer that question, I commissioned a professional survey of public opinion that was conducted in March 2017 by Datincorp in Caracas. The results were encouraging. At that time, 62 percent of the public favored dollarization. Today, since more than 80 percent of transactions in Venezuela take place in U.S. dollars, it doesn’t seem unreasonable to think that the approval rating would now exceed 80 percent. So, it’s not surprising that Maduro has embraced the dollarization idea. After all, the public already does.
But, the question I am repeatedly asked is: How do you officially dollarize a place such as Venezuela? To do that, you need a dollarization law. I have drafted such a model law. The model statute is meant to suggest the main features that are desirable for a law on dollarization. Legal technicalities may require an actual statute to be somewhat different.
A Model Dollarization Statute For Venezuela
- The Banco Central de Venezuela shall cease to issue Venezuelan bolivars except as replacements for equal amounts of old currency that become worn out.
- Except as specified in paragraph 3, wages, prices, assets, and liabilities shall be converted from Venezuelan bolivars to U.S. dollars (“the replacement currency”) at the conversion rate chosen in the law that accompanies this law. By 60 days after this law enters into force, wages and prices shall cease to be quoted in Venezuelan bolivars.
- Interest rates shall be converted into the replacement currency by the following procedure. The independent committee of experts specified in the law accompanying this law shall choose benchmark interest rates in the Venezuelan bolivar and replacement currency, having similar characteristics with respect to maturity and liquidity insofar as that is possible. The ratio between existing interest rates in Venezuelan bolivars and the benchmark interest rate in the Venezuelan bolivar shall determine the interest rate in the replacement currency, which shall bear the same ratio to the benchmark rate in the replacement currency.
- In no case, however, shall new interest rates in the replacement currency resulting from the conversion procedure exceed 50 percent a year.
- The president may appoint a committee of experts on technical issues connected with this law to recommend changes in regulations that may be necessary.
- Nothing in this law shall prevent parties to a transaction from using any currency that is mutually agreeable. However, the replacement currency may be established as the default currency where no other currency is specified.
- While Venezuelan bolivars remain in circulation, the government shall accept them in payment of taxes at no premium to the conversion rate with the replacement currency. Acceptance of Venezuelan bolivars shall not be obligatory for any other party.
- Within five years after this law takes effect, the government shall redeem all outstanding Venezuelan bolivars for the replacement currency or exchange it for government debt bearing a market-determined rate of interest.
- Existing laws that conflict with this law are void.
- This law takes effect immediately upon publication.
With that, Venezuela has a clear blueprint for how to proceed to smash hyperinflation.