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IS has big plans for gold currency

As the Islamic State challenges the US dollar by rolling out its own currency, some experts say the coinage will not catch on.

CAIRO — The Islamic State is declaring financial war on the United States.

Al-Hayat Media Center, which is affiliated with IS, recently broadcast a big-budget film titled “The Rise of the Caliphate: Return of the Gold Dinar.” In the film, aired Aug. 29, IS talks about destroying the US dollar by excluding it from international financial transactions and replacing it with gold, silver and copper.

IS said the United States deceived the world. According to the film’s content, in 1913, the United States established the Federal Reserve Bank and pledged to pay gold on demand for the dollar. However, following World War I the United States switched from the gold standard to a flat greenback currency at the local level. After gold flowed to the United States from several countries in the world — as a result of World War I and World War II — the United States created a new system governing banking and foreign exchange called Bretton Woods to maintain the dollar's convertibility into gold at the international level. However, in 1971, President Richard Nixon suspended the dollar’s convertibility into gold. The Bretton Woods system dissolved between 1968 and 1973, according to the International Monetary Fund. According to IS, the United States maintained its currency in a “satanic way” by using oil, described by the United States as black gold, and forced countries to buy and sell oil in dollars through the petrodollar system. 

Now, IS asserts that replacing the dollar with gold will push major powers such as China and Russia, who had bought US Treasury bills, to sell these bills, leading to a complete collapse of the US financial system.

Islamic thinker Najeh Ibrahim, a former jihadist in the ranks of the Islamist Gamaa Islamiya, told Al-Monitor, “The fact that IS is monetizing its currencies carries more than one message. The first message is addressed to the world, in which IS confirms that it has become a [legitimate] state. The second is addressed to Muslim youth, in which IS asserts that the Muslims’ dignity and economic power, lost since the era of the caliphate, have returned.”

Ibrahim pointed out that with every coined currency, IS plays on the psychology of its supporters. “Each coin has its own connotation. The first is a 1-dinar coin of pure gold weighing 4.25 grams [0.15 ounces], and this is the same weight as the first gold dinar of Umayyad Caliph Abd al-Malik ibn Marwan. On its reverse side, the 1-dinar coin has a symbol of seven wheat stalks, representing the blessing of spending in the path of Allah. The second coin is the 5-dinar coin and weighs 21.25 grams [0.75 ounces]; it is imprinted with a map of the world, representing the extent of territory [the Prophet] Muhammad's reign would reach.”

There are three types of IS silver coins. The 1-dirham coin weighs 2 grams and features on its reverse side a spear and shield indicating that the source of provision of the Prophet Muhammad was from jihad in the name of Allah. The 5-dirham coin weighs 10 grams and shows on its reverse side the minaret of Damascus, the place where Islam says Christ will return to Earth. The 10-dirham coin weighs 20 grams and shows Al-Aqsa Mosque on its reverse side. Moreover, copper fulus were minted for simple financial transactions.

Ibrahim said, “There are economic, political and scientific relations between the countries [that cannot be overlooked]. To be recognized as a state, IS must be accepted by others. There are 192 countries in the world and none of them recognizes IS as a state, and therefore its currency will not be recognized.” He added, “Any currency must be accepted by the transaction parties. The holder of a currency must not feel threatened by using this currency. An Egyptian worker in Libya working in an area controlled by IS will not accept his salary in IS gold dinar, because he knows that he cannot transfer this amount to his children in Egypt. If this worker is caught carrying this dinar in Egypt, he may be subject to legal prosecution. People will not use this currency, even if [it is] made of gold.”

Ibrahim said Wilayat Sinai, which is affiliated with IS, probably will not use the currencies in Egypt. Wilayat Sinai has no real territory under its control, no nationals under its rule and no natural resources to export, unlike IS with its smuggled oil exports. On the other hand, if IS supporters from Wilayat Sinai receive their salaries in IS gold dinars, they will find it difficult to purchase their daily needs using this currency.

Fouad Shaker, secretary-general of the Union of Arab Banks, told Al-Monitor, “The issuance of currency in the modern era is based on the state’s macroeconomics and gross national product — the produced goods and services, not just metals. What IS did is very logical and reassures its salaried supporters, since at times of war nations will print money but there may not be a cash cover [at a later stage], which will reduce the purchasing value of those [paper] currencies.”

Finance Minister Fayyad Abdel Moneim, a former professor of Islamic economics at Al-Azhar University, told Al-Monitor, “There is no kind of prohibition of the use of banknotes in Islam, and the use of the gold coin has no impact on the US economy, whose gross domestic product exceeded $17 trillion dollars in 2014, equivalent to one-quarter of the whole world production.”

He said, “There is not enough gold to cover the world’s huge financial transactions, and IS’ hypothesis that the US dollar is weak is wrong, since it assesses the US dollar on the basis of gold only and not based on production.”

Moneim added, “The US Treasury bills are the safest in the world since they are backed by a powerful economy. If China and Russia tried to sell their US Treasury bills at once in order to hit the US dollar, these countries would also be affected since they would be reimbursed the value of these bills in the US dollar that had lost its purchasing power.”

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