ISIS Introduces Coins

There are reports that the Islamic State has announced the introduction of a new trimetal monetary system, which they claim is based on the ancient dinar. The original dinar of course was a rebadging of the Byzantine δηνάριον by early Islamic rulers. The new ISIS currency consists of seven coins of which two are gold, three are silver, and two are copper. According to the Brookings Institute the coins are inscribed with a version of the message "The Islamic State: A Caliphate in Accordance with the Prophetic Method" reflecting the Islamic State's declaration of a Caliphate back in June.

With the number of media reports suggesting that the Islamic State funds itself largely through the sale of oil, ransom payments, and trafficking antiquities along with reports of efforts to restrict the ability of the Islamic State to utilize contemporary banking and money transmission services suggests a practical motivation for the Islamic State to move to a metallic monetary standard. Since the Islamic State's economic output is largely based in products with inherent hard value such as hostage's lives or incredible fungibility as is the case with oil, ISIL may begin or may already have started demanding payments in monetary metals.

Many of the downsides of monetary metals for individuals and small groups of persons are less of an issue for the Islamic State. Gold is notoriously hard to secure to due its commanding physical presence which defies easy concealment. Securing gold  requires the ability to kill those who threaten to seize it and as an actor in a ground war, the Islamic State seems to have demonstrated the propensity for violence necessary to transport and hold monetary metal.

The reason for the need to secure Gold with extremes of violence, subterfuge, or both is that unlike the cryptocurrency Bitcoin, Gold seized immediately preserves its full exchange value. Maybe someone who seizes a particular object of gold may want to hammer or remelt it to conceal that the gold was once a particular piece of jewelry or particular coin minted by a certain Islamic State, but gold for the sake of being gold retains an exchange value into other currencies on the virtue of its composition. Bitcoin on the other hand demands not only mere physical possession, but actual control of a set of keys necessary to transfer value. While gold is vulnerable to a simple change of possession, Bitcoin requires a more difficult but possible intellectual change of possession.

Of course the great downside for the Islamic State, one which presents an obstacle towards moving to cryptocurrency is the limited market cap of Bitcoin making it more vulnerable to market manipulation along with thin orderbooks limiting the size of reasonable transactions.1 This acknowledgement is necessary on the part of persons in the know. That  at the present gold has been capable of sustaining greater transaction volume, not because of blocksize and even though a Buterin's waterfall controlled by adversaries of the Islamic State is well established in the precious metal markets, but because the orderbook for gold is thicker. At this moment it would take a significant expenditure in blood and treasure to devalue Islamic State holdings of monetary metals.

Now the new Islamic State currency is indeed vulnerable to fluctuations in the value of the underlying metals the coins are minted from. On the other hand if the Islamic State's existence is short it would take little for persons holding gold Islamic State Dinar to render them unrecognizable as such and convert them to any other extant currency. The great weakness of any Bimetallic or Trimetallic currency scheme is that a sufficiently funded actor could work to separate the value of the underlying metal's price parings outside of bounds the minter anticipated. So long as the minter avoids the mistake of United States Populists in the late nineteenth century, and doesn't insist on firm exchange rates between the different tiers of coins as determined by their composition, such a system might prove to actually be robust.

  1. An important distinction between people who talk of Bitcoin and people who simply derp and want to flip some bitcoin for some profit is that the former has seen the damage that "paper" sold as the equivalent of gold et al has done to the underlying assets and the latter is simply for hire  

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