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I heard that there is indeed an option to do that, with help of some apps. You keep your real contacts list in these apps. Presumably this also means that you have special dialer and sms apps integrated with this contact list app, since otherwise you can't just tap a contact to dial or message, and would have to copy-paste phone numbers around.
Dunno what to do about messengers and such, which integrate with the contact system to show their correspondents in e.g. the ‘share’ menu. Not sure if these contacts are available to other apps—but if they are, it seems impossible to hide them.
Also there's e.g. a plugin for the (non open-source) Xposed ‘framework’, to feed fake data to apps that want to access the location and other such info. Seems to be able to fake the contacts, too, but afaiu requires a rooted phone: https://github.com/M66B/XPrivacyLua