This is going to be seriously amusing

The Islamic State has announced that they will start producing their own currency in areas under its control, in an effort to “emancipate itself from the satanic global economic system”.

Isil which is thought to be the wealthiest terror group in the world – announced on Thursday its plans to reinstate an ancient Islamic dinar currency using gold and silver coins in a move “purely dedicated to God”

The self-declared state’s Treasury said it would soon be issuing another statement to explain the new currency’s exchange rate and where to find it.

The currency, based on the original dinar coins used during the Caliphate of Uthman in 634 CE, will include seven minted coins: two gold, three silver and two copper.

The reason? Because using bullion as currency isn’t going to isolate them from that satanic global economy, it’s going to tie them in to it. Prices will now bounce around according to the bullion prices. And that might just about work if everyone was using the same system: a global (ie, satanic) gold standard. But as everyone else isn’t using it then as the bullion price rises then the coins will leak out and be smelted down. And given that their mint is unlikely to be all that sophisticated it wouldn’t surprise to see fakes being made when the bullion price falls.

They’ll end up with exactly the opposite of what they think they will. A wildly swinging money supply, wildly swinging real prices. It’ll be a disaster.

What fun, eh? Shattering the dreams of all those gold bugs out there.

20 thoughts on “This is going to be seriously amusing”

  1. Not sure how finely Gresham’s Law will apply if they start beheading people caught with counterfeit/other cash!

    It will be amusing, for outsiders.

  2. So Much for Subtlety

    Why would their currency bounce around any more than anyone else’s? After the value of the pound is determined by the market too. That is, it bounces around according to a rather limited set of supply and demand. So does gold. It is not linked to the state of their economy in the way the pound is but on the plus side it is likely to be hard to inflate its value away. Melting down coins for their bullions is not, after all, a bad thing.

    What it will be is counter-cyclical to the American dollar. That may or may not be a good thing. But it is probably what they want.

    Their objections to Satan’s monetary system seems to be an objection to fiat currency. So they may have some fans.

  3. It has been suggested that the reason the Federal slugs decided to finish Gadaffi (not that he didn’t both merit and deserve his end) was his attempt to set up a gold-backed dinar.

  4. Mr Ecks,
    Yes, and it has been suggested that Saddam Hussein wanted to switch to pricing oil in Euros instead of Dollars, and that’s what prompted the US invasion. But it’s complete bollocks, which is obvious if you stop to actually think about it for more than a few seconds. Similarly your Gadaffi story is bollocks.

    The likes of BitCoin are a more serious challenger to fiat money than any gold-backed currency. (Probably not BitCoin itself, but perhaps BitCoin v2 or v3.) Even then, a currency without an army isn’t worth much either.

  5. Currency issuers normally use coercive methods to ensure their currency dominates rival currencies. E.g. governments that issue their own currency normally make it mandatory to pay taxes in that currency, and if you don’t pay taxes you go to prison. Plus they pass laws making their currency legal tender, i.e. making it illegal to refuse payment offered in that currency.

    The charming folk that run ISIS would probably do likewise, only their “coercion” would be a bit more swift and brutal: like, if you’re found in possession of infidel dollars, then its “off with your head”.

  6. “Isil which is thought to be the wealthiest terror group in the world”

    How did it get so rich? Using the oil wells it’s captured? The Saudis?

  7. “But it’s complete bollocks, which is obvious if you stop to actually think about it for more than a few seconds.2

    Please give us the benefit of your few seconds of thought

  8. ajf, I believe they looted an Iraqi central bank depository.

    But seeing as the Islamic State is gaining all the trappings of any other state, I don’t think it will be long before they instigate citizenship and start issuing their own passports. That would solve our legalistic problems with ex-British emigrating terrorists too.

  9. I’m hearing that far from controlling the oil wealth (although what little they get is still quite a lot), most of the fields are taken over by ISIS and very quickly destroyed by air strikes arranged by, sanctioned by and/or flown by the Americans. Not a lot of the crude is making it out, although they could be talking to people willing to lend them money against the reserves they can’t currently extract

  10. The thing that makes me giggle is any reaction from the tea partying gold bugs. Their dreams come true through the enemy of all they hold dear.

    If they follow their convictions of “sound money” would we see an exodus to Syria? That brings a whole new definition to the term “going Galt”, but at least they wold be away form the Feds.

  11. Mr Ecks,
    Your suggestion is that the US invaded Libya (under the NATO banner) because Gaddafi was going to set up a gold-backed currency. I assume, and correct me if I’m wrong, that you mean that a gold-backed Dinar would be a threat to the US Dollar’s hegemony.

    The main obstacle is trust. Any “gold-backed” currency is only worth the same as gold if you trust the country that issues that currency. Who is to say Gaddafi wouldn’t renege on his promise of convertibility as soon as it was convenient to do so? After all, Britain and the U.S. both did; and so did a great many other countries. And let’s face it, Gaddafi wasn’t exactly known for being a man of his word.

    The second obstacle is that the US dollar’s hegemony is a local maximum. It may not be perfect, but the cost of changing to a different global currency is greater than the cost of maintaining the status quo. Even the euro, the world’s second-largest currency, hasn’t usurped the dollar. I believe that’s a matter of confidence: the euro is barely fifteen years old and it’s already showing signs of weakness.

    As it stands, there’s nothing stopping gold (or the euro) from becoming a world currency. Your company is free to set up a contract with other companies denominated in gold; and your business can accept payments in gold, just as Canadian shops along the US border accept US dollars. I’ve seen shops which accept BitCoin payments. There’s even a gold-backed credit card coming soon. Yet somehow gold mysteriously fails to take off.

    Saddam’s alleged euro-denominated oil trading is also no threat to the dollar. We live in a world where euros can be swapped for dollars at the push of a button: displaying your oil price in either currency makes no difference to the buyers. At the margins, some buyers might choose to hold a few more euros in order to hedge their currency; but ultimately swapping one western-controlled fiat currency for another is a lot of pain for zero gain.

    So no, the US doesn’t choose which countries to invade on the basis of their preferred trade currency. It’s just bollocks.

  12. @Andrew M: very considered response, the key part being Trust.
    The reason our fair City remains the centre of the financial universe is just that; trust in our laws, not the brilliance of our bankers. It is the same reason our Russian friends like to choose us as the venue for their tiffs and Greece issues their bonds under UK law.
    Goldbugs cling to any conspiracy that lets them unload more of the yellow metal; whether it is the end of the dollar, Gaddafi or China. Much the same as the lefties calling for an end to the City I have long considered those Americans calling for an end of the dollar to rank no higher than traitors.
    As long as we have the Inns, I am pretty sure Chinese bonds will be issued under our laws, when investors feel comfortable with a Shanghai court ruling, then the end may come. Long before that, most of us will have passed.

  13. “The Islamic State has announced that they will start producing their own currency in areas under its control”

    I suppose they’ve recently overrun a bog roll factory and are planning a “one sheet = one goat” monetary strategy with a bit of overprinting and a lot of coercion.

    The takeaway I get from this is that they are running out of money.

  14. It will go the way of Confederate Currency while in operation, a couple of months trading okay followed by rapid depreciation as IS shrinks. Once IS no longer exists, having become worthless as a currency, it will rise again as a collectable.

  15. Some here seem to think ISIS are talking about issuing a gold backed currency. They’re not. They are talking about minting gold coins. They may go down in value but they will never be worthless. Plus, this is already a culture where people turn cash into gold and wear it, so it is not at all odd. I assume there will be severe penalties for being found in possession of Dollars so why wouldn’t it work?

    Anyway, no need to speculate, we’ll find out in good time.

  16. Ian B’s Law: any commodity currency will eventually and inevitably become a fiat currency, so long as paper or equivalent is freely available and of trivial cost.

  17. ISIS do seem to be quite adept at running the functions of a state compared to your run-of-the-mill terrorist groups. They’ve even started advertising for petroleum engineers to help run their oilfields, which has amused a few of us at work. They are producing some fields but at very much reduced rates, Total’s Syrian fields are now being operated by ISIS.

    And yes, they got rich by looting banks full of dollars.

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