This paper investigates the Minimum Variance Portfolio (MVP) approach to analyzing dollarization in Georgia, extending the foundational work by Ize and Levy-Yeyati (1998, 2003). Conventional MVP dollarization analysis typically employ a one-period model with restrictive assumptions, particularly regarding serial correlations and the temporal scope of price and exchange rate dynamics. This study relaxes these constraints by incorporating extended time horizons and accounting for more realistic patterns of serial correlation. The enhanced model provides a more nuanced understanding of the interplay between prices and exchange rates, offering valuable insights into the determinants of dollarization. For central banks aiming for long-run de-dollarization while maintaining price stability, these insights are critical for designing effective policy measures. Using historical data from Georgia, the study demonstrates that the modified MVP framework, which incorporates volatilities in price levels and real exchange rates, yields estimates that better align with the observed levels of dollarization in the country, showing an equilibrium value of dollarization at 20-30%. This alignment underscores the model’s robustness in capturing the structural dynamics of dollarization and its relevance for policymaking in small, open economies like Georgia.