During the 1972-1973 school year at the University of Michigan Business School, which was my junior year, Marina von Neumann Whitman came to address the students and faculty. Whitman, the daughter of famed mathematician John von Neumann, was then serving on President Nixon’s Council of Economic Advisors.
After her speech, she took questions from the audience. I was fortunate that my question was one of those asked of her. My question, to the best of my recollection is what impact would it have on global currencies if a nation were to establish a monetary system denominated on weights and purities of gold and silver.
She answered my question in two parts. First she said that no nation would ever adopt such a monetary system because the fiscal straightjacket that would impose on the government would quickly result in the politicians being voted out of office. She then went on to say that, however, that if any nation were to establish a monetary system on the basis of weights and purities of gold and silver all other currencies would fail.
The reason I asked the question at the time was I was hoping to be one of the first settlers on the Minerva Reefs in the south Pacific, helping to build up the reef into habitable land that could then be occupied as a new nation. Those working to establish the Republic of Minerva were anticipating a monetary system denominated in weights and purities of gold and silver.
This attempt to establish a new free nation failed for a variety of reasons. However, one remnant of the attempt was a $35 Republic of Minerva gold and silver coin struck by the Letcher Mint in Lancaster, Calif.
In the decades since, no other nation has seriously considered the idea of establishing a monetary system based on the weights and purities of gold and silver coins. Until last Thursday.
On Nov. 13, the Islamic State for Iraq and Syria (ISIS), a rebel/terrorist group with current dominion over several parts of those two nations announced that it would issue a series of gold, silver and copper coins. The gold and silver coins, to be called dinars, are intended to circulate on the basis of the value of their weight and purity.
I was quickly interviewed by a reporter from The Wall Street Journal (go to http://blogs.wsj.com/moneybeat/2014/11/14/islamic-state-to-mint-gold-coins/) and then from National Public Radio’s Marketplace (go to http://www.marketplace.org/topics/business/it-wont-be-easy-isis-create-its-own-currency) on the subject of the ISIS announcement. I explained that the original gold coins from the early days of the Arabian Empire were called dinars, so that last week’s announcement tied in with history.
In my judgment, this announcement by ISIS was brilliant. Most people today consider establishment of the monetary system and the issuing of coinage and currency to be a function of a national government, though this has not been the case through most of monetary history. So, for ISIS to issue their own coinage would be a means to legitimize their contention that they are a government like the rest of the globe’s nations. So, issuing coins would be a political coup for them.
Also, there have been some efforts over the past decade or so to establish a circulating gold dinar for use in Islamic nations. At one point, Malaysia considered issuing such coins, but did not do so. So, for ISIS to accomplish the issuance of circulating gold coins would position the organization as a leader for fellow Moslems to follow.
Finally, a successful launch of circulating gold and silver coins that trade on the basis of their metal value would be far more appealing to consumers than using issues backed by nothing but the frequently broken promises of politicians. Even if ISIS were to fail as an entity, its gold and silver coinage would still be tradable on the basis of intrinsic content. It this effort were extremely successful, it could put the U.S dollar and most of the world’s currencies in danger of collapse.
The U.S. government, issuer of the current most popular currency used to make payment for international transactions, has a huge incentive to do everything it can to prevent any ISIS currency from gaining any traction in commerce. The United States is already a political opponent of ISIS and wants to protect the U.S. dollar from any competition in the global economy.
Don’t be surprised if the U.S. government makes it illegal for citizens to own these coins, or to use them as circulating money. Also expect the U.S. government to put pressure on other nations to deny the use of such coins for international commerce.
Some people have suggested to me that the U.S. government would seek to bomb any facilities that ISIS would have for striking such coins or storing the gold and silver. In theory that might be a practical strategy.
However, remember how the U.S. government worked with the U.S. and Philippine guerrillas in World War II to produce currencies in dozens of places to compete with the occupying Japanese issues. It could be possible that ISIS would have such coins struck at several locations, including foreign nations, that it would be almost impossible to prevent supplies for entering commerce.
Stay tuned for developments.
Patrick A. Heller was the American Numismatic Association 2012 Harry Forman Numismatic Dealer of the Year Award winner. He owns Liberty Coin Service in Lansing, Mich., and writes “Liberty’s Outlook,” a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Coin Week (http://www.coinweek.com and http://www.coininfo.com). He also writes a bi-monthly column on collectibles for “The Greater Lansing Business Monthly” (http://www.lansingbusinessmonthly.com/articles/department-columns). His radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com).
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