Will a currency board help resolve Lebanon’s financial crisis?

Will a currency board help resolve Lebanon’s financial crisis?

Plans to establish a currency board in Lebanon in a bid to help resolve the ongoing financial crisis has been met with division among economists.

Opponents of the proposal, promoted by Steve H Hanke, a professor of applied economics at the Johns Hopkins University in Baltimore, believe that this model does not apply in all countries while supporters see the experiment as the best solution for "countries without credibility" like Lebanon.

Analysis of the Big Mac Index reveals the Lebanese pound is 68.7% undervalued, ahead of the Russian rouble

Hanke, a world leading expert on measuring and stopping hyperinflations, told Arabian Business Lebanon should do exactly Bulgaria did in 1997 when he was president Petar Stoyanov's chief adviser.

A hyperinflation was raging at 242 percent per month and he designed a currency board system, which the Bulgarian government proposed to the International Monetary Fund.

"Inflation was crushed and stability was established from one day to the next," Hanke, pictured below, said.

He explained that the currency board would issue a domestic currency that is freely convertible at an absolutely fixed exchange rate with a foreign anchor currency. Therefore, under a currency board arrangement, there are no capital controls.

In total, there have been over 70 set up