Why ISIS’s New Currency Will Outlast the U.S. Dollar

The Islamic State of Iraq and the Levant (ISIL), known to us as ISIS, has reportedly developed its own currency. Normally, you would expect the currency of a criminal and murderous state which is opposed by most of the civilized world, to be worthless. However, ISIS’s new currency is at least as viable as the dollar and could even outlast it; that is because it’s made of gold and silver.

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ISIS seems to have developed a viable currency. Syrian activists recently shared these images of the new currency via social media, but ISIS warned the world it was coming in November. It will be known as the “Islamic dinar” to its tragically misguided followers and perhaps morbid coin collectors. To the rest of us, it’ll be known as gold, silver and copper, and it will carry the relative and respected value of those precious metals (melted down of course).

ISIS is reportedly going to have two gold coins, three silver coins and two copper coins. It’s part of the group’s effort to establish and embed itself as a real bona fide nation. The coin is being modeled after an ancient dinar used during the Caliphate of the Uthman in 634 CE. ISIS cannot trade with dollars or euro, obviously, given its opposition to western civilization. It would not want to justify the civil order that its evil guides seek to displace. Who would believe the dollars weren’t counterfeit anyway? Gold is gold and silver is silver, no matter how bloody the money, and even ISIS should be able to trade with it. The coin shown in the image here is reportedly worth $139, determined by its weight in gold not its place of origin or any central bank manipulation.

How can this golden dinar outlast the dollar? Fiat currency like the dollar is basically given its value based on the viability of the country backing it. It’s a market determined relative value versus other currencies. It’s based on many factors including supply and demand, inflation, the credibility of the country issuing it, and the outlook for that nation’s economy and sovereignty; and some would say the manipulative efforts of its central bank.

The dollar is so strong today because the U.S. economy is the world’s most developed and the U.S. government is the world’s most stable. For as long as America goes unchallenged atop the world, the dollar will remain the strongest fiat currency. And since it is a relative value, it benefits today from weakness in other areas of the world.

However, as the world develops, the dollar must give way to it. Stagnant economies like Japan are still losing ground to the dollar, and the euro has its troubles today, but the development of the world has affected the dollar in a profound manner. In my view, it is the fate of the dollar to weaken over time, and the result of global development. As the rest of the world works its way to an even playing field with America, its currencies will gain ground against the dollar as well. Now, this may be decades or a century in coming, as the world’s governments continue to evolve from monarchies, dictatorships and other forms of inefficient managers of economic growth, but it should eventually come, in theory. I say in theory because before it comes, other disruptions are somewhat probable and could undermine fiat currency across the globe. You know what threats I speak of: war (most likely), global warming, asteroids from space, etc.

In such scenarios where the backing of an economy and government isn’t quite as important or even worth anything at all, what will mankind use to trade in goods and services? It will use a barter system, and in the place of goods, gold as a proxy. So, therefore, ISIS’ new currency could outlast even the all-powerful and supreme U.S. dollar. It was a no brainer for the caliphate wanna-be, and gold should be a no brainer for you and me as well for the same reason. Gold is mankind’s default currency, period.

In today’s society, where we expect everything to stay the same and we won’t allow ourselves to foresee risk of change, gold is influenced by many factors. It retains, however, currency value as evidenced by ISIS of all peoples. Gold is therefore a must own in every portfolio for the long-term. And investors today can own derivatives of gold and silver as well, via the shares of gold miners like Randgold Resources (Nasdaq: GOLD), and ETFs like the SPDR Gold Trust (NYSE: GLD), iShares Silver Trust (NYSE: SLV), Market Vectors Gold Miners (NYSE: GDX), and leveraged plays for short short-term bets or hedges like the Direxion Daily Gold Miners Bull 3X Shares (NYSE: NUGT). Nevertheless, there is no perfect replacement for real physical gold for the long-term holder, as evidenced by ISIS’s ability to trade with it. I cover gold and currency regularly and welcome readers to also follow my blog at Wall Street Greek and column at Seeking Alpha.

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