How ISIS is creating its own financial system

Using a combination of own currency, the gold dinar, and its apparent use of the decentralised currency bitcoin, ISIS appears to be creating its own financial system.

In video footage earlier this year ISIS revealed its plan for minting its own currency, the gold dinar.

The jihadi group said the 21-carat one dinar coin will weigh 4.25 grams and will be worth an equivalent of US$139 due to its weight in gold.

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The group also claims to have created three denominations of silver dirhams and two copper coins, known as ‘fulus’, for smaller transactions.

The militant group says that the new currency will never lose value in comparison to paper money – claiming that only gold is the true measure of wealth and America’s reliance on bonds and oil are its ‘Achilles heel’.

ISIS has said it want to replace the "satanic concept of banks".

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The group has also allegedly been using digital currencies such as bitcoin to transfer money quickly and without detection.

"Sadaqa (private donations) constitute one of ISIL's main sources of revenue, and its supporters around the world have allegedly used digital currencies such as bitcoin to transfer money quickly to accounts held by ISIL militants while minimising the risk of detection," EU Institute for Security Studies junior analyst Beatrice Berton wrote in a report, referring to IS by an alternate acronym.

According to Germany’s Deutsche Welle, the militant group has sent thousands of dollars worth of bitcoin to accounts purportedly affiliated with "Islamic State," with the one of the accounts registering its first transaction in 2012.

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However, following a chain of transactions from the concerned account leads to another with more than $3 million in bitcoin, though it is unclear who the account's owner is.

But there are three rather obvious problems with Islamic State’s plan to replace the global banking system, the Economist newspaper reports.

First, the dinar’s worth will be determined by the supply and demand for gold, exposing the currency to fluctuations in price.

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Second, a coin backed by a terrorist organisation has obvious credibility problems.

And third, ending the petrodollar system would first require Islamic State to seize a far larger share of oil production in the Middle East and then persuade countries to agree to trade with it – but even if successful, the US dollar depends on more than just its use in oil trade.