When ISIS announced in 2014 that it would create its own currency of gold, silver and copper coins, the terrorist organization said its intent was to free its purported Islamic state, or “caliphate,” from a global economic system it views as corrupt.
The introduction of gold dinars and silver dirhams – modeled upon those minted by Caliph Uthman in 650 CE – may indicate instead the group’s preparation for the destruction of the “caliphate” and its subsequent need to easily launder its wealth, according to a researcher at the University of California, Riverside.
Regardless of why ISIS created a coinage monetary system, cutting off avenues for converting these coins to cash should be a priority in global counterterrorism efforts, Ian Oxnevad, a Ph.D. student in political science at UC Riverside, writes in a paper published in The Journal of the Middle East and Africa. The peer-reviewed journal is the flagship publication of the Association for the Study of the Middle East and Africa.
“Should ISIS come to military defeat and its members scatter worldwide, or if it continues in its current incarnation, the value carried in gold, silver and metal coins offers the group a simple means of transferring value among its members and laundering its wealth into currency beyond the confines of the organization,” Oxnevad says in “The caliphates’s gold: The Islamic State’s monetary policy and its implications.”
The common use of a metallic monetary system virtually vanished worldwide by the early 20th century. It is also an expensive form of currency to produce. So why would a terrorist group publicly declare a trimetallic monetary policy?
The establishment of a monetary policy that has its roots in Islamic economic philosophy “may imply a move to revive an authentic economic past in accordance with (ISIS’s) ideological mythos,” Oxnevad says. Or, it “may indicate its design for a utilitarian purpose, such as financing governmental functions or facilitating the funding of terrorist activity through money laundering.”
Scholars of Sharia, or Islamic, law are divided on the topic of paper money, the political scientist explains in the paper, noting that monetary policies of historical Muslim empires were driven by practicality, not religious purity. ISIS’s move toward a trimetallic monetary policy, he suggests, derives “more from romanticizing the past than following sharia law.”
“Modern Islamist economics … seeks to demonstrate cultural separateness and distinction, while many Islamist groups seek to place blame for localized economic failure on foreign influence,” he writes. “Regarding the issuance of coinage, evidence exists to suggest the issuing of new coin-based currency in Islamic history has followed this logic.”
A coin-based currency may, however, be designed to function as “a financial safety mechanism for the regime under stress,” making it easier for ISIS to launder its wealth in gold markets that remain under-policed, thereby offering a means of bypassing currency controls, Oxnevad suggests.
“Oil revenues provided ISIS with the means to secure major currencies prior to the start of coalition bombing in September 2014. The announcement of a metallic currency in November 2014 cannot be entirely coincidental, as converting value into precious metals in the form of specie facilitates the group to effectively launder its wealth in the event ISIS needs to expand its operations or devolve into a transnational terrorist group with a territorial safe haven,” he explains. “Indeed, such a shift to gold follows a long historical pattern of regimes turning to gold as a form of ‘golden parachute’ when under stress or facing defeat.”
The convertibility offered by gold and silver offers ISIS and its members an under-regulated and highly liquid means of obtaining hard cash outside of is territory, Oxnevad adds. Foreign fighters, for example, can melt down gold and silver coins and covert them back to hard currencies before returning to their countries of origin.
“Whether or not regional and international authorities seek to curtail gold conversion in the region remains to be seen. Whatever course of action is taken by states within an anti-ISIS coalition, depriving the group of golden loopholes through increased surveillance of metal dealers in the region remains an option,” Oxnevad suggests. “Integrating Middle East metal dealers into the financial system, and applying greater regulatory scrutiny and intelligence assets to free trade centers such as those in the Gulf, should comprise a policy priority in countering terrorism both now and in the future.”