EDITOR NOTE: Lebanon’s inflation rate has reached 365%--its consumer price index tripling in less than a year--making it the nation with the second highest level of hyperinflation. The nation has had talks with the International Monetary Fund for a bailout, but that has stalled due to inaction over long-demanded reforms to root out corruption and mismanagement. Meanwhile, mass protests rage on in a country that has neither a government nor central bank to regulate its collapsing economy. Fortunately for us, we’re nowhere near this predicament. But there is evidence of the possibility that a hyperinflationary scenario is well within possibility, given that our debt and deficits have exceeded record levels.
Based on Hanke’s Annual Inflation Rate model, Lebanon is seen to have surpassed Zimbabwe, landing as the second most hyperinflated in the world, right after Venezuela.
Lebanon’s inflation rate reached a high 365%, which is 3 times its percentage rate of August where it was at 120%.
Professor Hanke calculates inflations based on the measurements of The John’s Hopkins-Cato Institute Troubled Currencies Project (TCP), which he directs.
They employ high‐frequency data that allow for the daily measurements of both monthly and annual inflation rates.
“The most important price in an economy is the exchange rate between a country’s local currency and the world’s reserve currency, the U.S. dollar,” the professor of Applied Economics and Director of TCP explained in his report published by Cato Institute.
“Lebanon, the only country besides Venezuela currently experiencing hyperinflation, had an annual inflation rate of 302 percent per year at the end of October. So, Venezuela and Lebanon are members of the rogues’ gallery of hyperinflation episodes, of which there have only been 62 in recorded history,” he pointed out.
That was in October. Now, Lebanon’s is marking a whooping 365% inflation rate.
Before Lebanon’s currency began to topple down in value, it was pegged at a strong 1,500 LPB per dollar, whereas now the Lebanese pound fluctuates daily, with the dollar trading on Tuesday noon at around 8,225 LBP on the black market.
The current hyperinflation in the country is a result of the Lebanese authorities being unable to maintain a stable economy or control and monitor the pricing in the market.
According to The National, “Lebanon’s gross public debt reached $94 billion as of the end of July, a 2.1% increase from the end of 2019 and up 9% from July of last year,” which cannot be counted separately from the build-up to the Lebanese pound losing around 80% of its value.
In an interview with EuroAsia last month, Professor Hanke suggested that “Lebanon should do exactly” what he did in 1997 for Bulgaria where hyperinflation was raging at 242% per month.
He designed “an orthodox currency board system,” which the IMF reportedly approved and funded “immediately.”
“A currency board is a monetary institution (or a set of laws that govern a central bank) that issues a domestic currency that is freely convertible at an absolutely fixed exchange rate with a foreign anchor currency,” he explained.
“The domestic currency, which is issued by a currency board, is backed 100 percent with anchor currency reserves. So, with a currency board, the local currency is simply a clone of its anchor currency.”
Would that work for Lebanon? The esteemed professor believes so. However, unlike the willing government with which he worked in 1997, Lebanon is a very special case, with unique factors the professor didn’t factor in.
Lebanon has no government, no cooperating Central bank, and no ruling officials willing to put an end to the quickening collapse of the country, let alone agreeing on a currency board or a similar plausible solution.
The ruling officials haven’t even been able to agree on the formation of a government and the Central Bank would not even cooperate with the forensic auditors, and that despite that the fate of the country and its citizens depend on both situations.
So, for now, the Lebanese people will have to continue suffering the hyperinflation while their country is now a “member” of “the rogues’ gallery of hyperinflation episodes, of which there have only been 62 in recorded history.”
Originally posted at the961.com