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A hagiarchy (also called hagiocracy) is a form of theocratic government where members of the government itself are "sacred" or "holy". Most of the times it is formed by the clergy. It literally means "ruled by holy men". This term is effectively synomynous with Theocracy, the only difference being it's specific stipulation that society's leaders must be holy in their own right.
Hagiarchic micronations are possible, as this form of government is also used in fantasy.