By
Erik Holm

and
Siobhan Gorman

Gold dinar, circa 778 —Liberty Coin Service

The “Treasury Department” of the jihadist group that is now occupying large portions of Syria and Iraq announced Thursday that it plans to mint its own currency out of gold, silver and copper.

The goal: To break away from the “satanic usury-based global economic system” and instead use a currency that’s “based on the inherent value of the metals,” the group said in a statement that was distributed on Twitter, according to the SITE Intelligence Group, which monitors online jihadi forums.

Experts who track Islamic State militants and study Islamic finance say the move is part of the group’s ongoing effort to build a government and to reach its stated goal of creating a caliphate. It also comes as the U.S. Treasury Department mounts a global campaign to crack down on the group’s finances.

The gold coins will be called dinars. Some Islamic countries–including Iraq and Libya–call their modern paper currency the “dinar,” but gold dinars stamped with Arabic phrases can be traced back to a much-celebrated caliph named Abd al-Malik.

“Minting your own coinage was an important insignia of sovereignty within the pre-modern Islamic world,” said David Eisenberg, a lawyer in London who’s written a book about Islamic finance. Even for leaders who managed to carve out less ambitious areas of control, “minting coins was one of the first things you did.”

As part of its nation-building, the Islamic State has been setting up medical clinics, overseeing police forces, regulating prices in local bazaars, and providing jobs in the oil and gas fields it’s seized across a swath of Syria and Iraq.

“It makes perfect sense that this is the next step,” said Bruce Hoffman, a Georgetown University professor specializing in radical Islam. “They are adopting as many of the accoutrements of government as possible.”

In addition, the group may be looking to establish a new currency that’s more compliant with its strict interpretation of Sharia law, said Mr. Eisenberg. Some conservative Muslims are opposed to interest-bearing investments and fiat currencies that aren’t backed by an underlying asset, he said. The underlying concern, he said, is with “unjust enrichment” and economic exploitation of others.

The statement from Islamic State’s Treasury Department said the new currency would be “far removed from the tyrannical monetary system that was imposed on the Muslims and was a reason for their enslavement and impoverishment.”

The Wall Street Journal has reported that the militants have been funding their operations by smuggling their oil into Turkey for sale on the black market. Chip Poncy, a former Treasury Department official who helped develop the U.S. government’s strategy for combating terrorist financing, said the leaders of the Islamic State are unlikely to suddenly demand payment for that oil in their new currency.

“In order to remain anonymous, ISIL may most likely be settling transactions for smuggled oil in U.S. dollars or the local currency of a cash-intensive economy,” said Mr. Poncy, now a partner at The Financial Integrity Network. ”But it is also possible that ISIL is settling these transactions in more sophisticated trade-based or third party repayment schemes whereby it is paid in other products or in third party wires through front companies, locally or abroad.”

And coin collectors in the U.S., take note: Owning one of the new gold coins would put you in legally dubious territory.

“Legally speaking you’d have a pretty good case that’s transacting in ISIL currency would be prohibited as engaging in transactions in which a designating terrorist organization has a controlling interest,” said Mr. Poncy.

–Tatyana Shumsky contributed to this article.

SOURCE: http://blogs.wsj.com/moneybeat/2014/11/14/islamic-state-to-mint-gold-coins/?mod=ask