from Financial Post.

Steve H. Hanke is Professor of Applied Economics at The Johns Hopkins University in Baltimore, Maryland. He was President Petar Stoyanov’s advisor from 1997 to 2001. He is also a Senior Fellow and Director of the Troubled Currencies Project at the Cato Institute in Washington, D.C.

When Communism inevitably and finally collapsed, Bulgaria’s economy was a basket case – behind almost all other communist basket cases, including Ukraine’s.

Indeed, Bulgaria defaulted on its debt in 1990. By February 1991, Bulgaria had broken out in a bout of hyperinflation, with the inflation rate at 123% per month. And in February 1997, Bulgaria experienced the agonies of hyperinflation again, with the inflation rate reaching 242% per month.

As he looked into the abyss, President Petar Stoyanov decided against taking the plunge and appointed me as his advisor in January 1997. I immediately prescribed a currency board system to put an end to Bulgaria’s malady, something I had laid out for Bulgaria back in 1991 in a book I co-authored titled Teeth for the Bulgarian Lev: A Currency Board Solution.

Bulgaria installed a currency board in July 1997. The lev was backed 100% by German marks and traded freely at a fixed rate of 1000 leva to each mark. Inflation and interest rates fell like stones. The economy stabilized, and Bulgarians learned that even though stability might not be everything, everything is nothing without stability. Discipline at last.

Bulgaria is still not a market economy. The Economic Freedom of the World Annual Report 2013 published by the Cato Institute makes that perfectly clear. Of the 152 countries surveyed, Bulgaria ranked 49. Not good, but well ahead of Ukraine at 126. Economic freedom, which accompanies a market economy, is the engine of economic prosperity. If Bulgaria is to prosper, it needs a market economy.

A good starting point is the currency board, which brings fiscal and financial discipline that it provides. No more running to the central bank for a fiscal bailout. A currency board ties the hands of those meddlesome monetary authorities. And forget the silly theoretical and obscure arguments made by economists who don’t embrace fixed exchange rates. A currency board regime is all about discipline.

As we watch Ukraine melt down once again, we can see what could have been (and what could be) if Ukraine would have only embraced a system of discipline – like Bulgaria did in 1997. The table tells the tale.

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