Venezuela's 99.9% Bolivar Devaluation: The Prosperity That Never Showed Up 🦐

Venezuela's currency has lost 99.9999% of its value against the US dollar since 2007, yet the prosperity that devaluationists predict has not materialized. During the same period, Venezuela's GDP per capita has fallen from an index of 100 to 37.22, according to economic data cited in recent analysis. The collapse has occurred despite, and partly because of, repeated large devaluations of the bolivar, undermining the argument that weakening a domestic currency produces competitiveness.

Business elites in Venezuela have expressed concern that dollarization would remove the country's ability to devalue, making it uncompetitive. That concern rests on what the late David Henderson, former Chief Economist of the OECD, called Do-It-Yourself-Economics, a shorthand for the repeated assertion of half-baked theories unsupported by evidence. Serious economic research, by contrast, finds a negative relationship between currency devaluations and export performance, contrary to the claims of devaluation advocates.

Ecuador's experience after dollarization in 2000 has become a frequently cited counterpoint. After the Ecuadorian sucre lost 75.6% of its value against the US dollar from 1998 until the first week of January 2000, President Jamil Mahuad announced on January 9, 2000 that Ecuador would retire the sucre and adopt the US dollar. Since that switch, non-oil exports have grown at an annual compound rate of 7.1%, nearly twice the 4.3% GDP growth rate, reshaping the country from a mini-petrostate into an export-led economy.

One industry that has boomed under dollarization is prawns. Ecuador's prawn sector has displaced most of its international competition and now employs roughly 1.6% of the country's population, illustrating the export expansion that followed the removal of the devaluation option. The figures from both Venezuela and Ecuador are presented as empirical evidence that devaluations do not reliably deliver the export-led growth their proponents promise.