1/ #Step1: BdL governor needs to go (something I have been hoping for since 2013). Given his incompetence, and the Lebanese total loss of faith in his ability to administer the economy, it seems highly unlikely that he will ever solve any problem.
2/ #Step2: Lebanon needs to find a solution to runaway fiscal deficits. The key lies in the gov. budget. The ultimate source of hyperinflation is a large budget deficit being financed by BdL via printing money. Close the budget deficit and one can gradually end hyperinflation.
3/ #Step3: To avoid pitfalls of full dollarization, Leb could create a virtual currency, call it the vLira or whatever. vLira would not be an actual bank note, but a unit of account: Once created, all prices in stores, supermarkets and so on would be listed in vLiras.
4/ However, since there will be no actual vLiras in circulation, people would pay for goods by converting vLiras into their holdings of the Lira. i.e. people would still have and use the Lira but everything would be listed in vLiras, the virtual currency.
5/ Wages would be listed in vLiras. Taxes in vLiras. etc. And vLiras would be kept stable -- what would change will be how many Liras each vLira will be worth. The rate of conversion of vLiras into Liras would change on a daily basis according to market forces.
6/ The idea is that people would start thinking in vLiras -- and stop expecting prices to always go up. It will be a kind of transitionary tool that recognizes hyperinflation as much a behavioral problem as an economic one, and therefore it could not be stopped overnight.
7/ Once enough confidence in the vLira is established, the Lira will be gradually extinguished, and the vLira will become the new Lira. Such a plan would also require substantial int'l assistance in rebuilding institutions as well as BOP support through external financing.
8/ Stopping hyperinflation is not simple. It requires institutional and political stability, which Lebanon currently does not have. Such an approach has worked well in other countries and would be an possible way to stop Lebanon's fatal hyperinflation.
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