An Ottoman Piatsre (Sultan Selim III, 1789) and a Maria Theresa Thaler (later restrike of the 1780 coin). Photo: James Dawson
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When it comes to coins, Isis is clearly not as good as gold

A plan by the terrorist organisation to issue its own currency – in gold – reveals a further attempt to play on the history of the early Caliphs.

A cynic may say that what the leader of terrorist organisation Isis, Abu-Bakr Al-Baghdadi, and Winston Churchill have in common that they have attacked the Kurds but another thing may be the gold standard. It was recently reported that Isis plans to introduce its own currency, issued in gold, silver and copper. Though – unlike Churchill, who shortly will appear on the new £5 note and appears on the still legal tender 1965 five Shilling coin – Baghdadi won’t appear on his currency. The designs, in accordance with Islamic artistic traditions of not showing humans or animals, will apparently depict Arabic writing, mosques, palm trees, crescents and even a world map.

The plan seems to be a currency based on the bullion value of the metals in the coins, in contrast to all present world currencies which merely have a (widely accepted) token value. It is based on Isis’s interpretation of Sharia law and financial systems and deliberately emulates the currencies – the gold dinar and silver dirham – established by the early Caliphs.

The early Islamic Empire initially relied on Byzantine coins or copies of pre-Islamic Persian Sassanid coins. It was not until nearly 60 years after the death of Prophet Mohammed that they started to introduce their own coins. The Byzantines had pointedly placed the image of Christ on their latest issues and so the Umayyad Caliph of Damascus, Abd al-Malik, introduced a new standardised Islamic silver dirham in 691AD. The original coins, flouting any ban on human images, depicted the Caliph himself. It was not until 697AD that coins minted with only Arabic calligraphy were produced. These provided the pattern for most subsequent Islamic coinage. Though as the Islamic Empire fractured local rulers started producing their own money. Italian renaissance coins, issued to more exacting standards, started replacing local monetary systems in the late 1400s. Later silver dollars (Austrian thalers and Spanish pieces of eight) became widely circulated. The most popular Middle Eastern coin became the Maria Theresa thaler, the buxom image of the Holy Roman Empress being more popular with traders than Arabic calligraphy. The coin had a trusted weight set in 1754 at one-tenth of a Cologne Mark and continued to be produced following her death in 1780, its use for trade purposes being confirmed by the Vienna Currency Treaty 1857 (it is still minted today). The alternative coinage of the Turkish Ottoman emperors, who had assumed the title Caliphs of Islam could not keep up. It became debased, produced from billon, an alloy with less than 50 per cent silver. The Ottomans were also late in adopting Western scientific advances – they continued to produce imprecise hammered coins until 1844, only then introducing Western-style mechanically milled coins. Despite still ruling the Middle East, further decline led to the Ottoman Empire defaulting on its debt. In 1881 Ottoman finances were taken over by Western governments and corporations under the Ottoman Public Debt Administration.

Precious metals on the face of it sound like an ideal material for money, something durable that holds its value over time. But experience has proved this wrong, all world currencies now use base metal or paper. Bullion values are dictated by supply and demand, based on the usefulness or desirability of a commodity. Gold and silver do not have many practical uses, beyond jewellery or a perhaps tarnishable sets of cutlery. Their value is not intrinsic and is susceptible to great fluctuations. If the ratio between the value of gold and silver changes then bad money drives out the good as people spend the devalued coins but keep the increased value ones. The amount of coins in circulation is also just a fractional amount of money in an economy, the rest is in bank balances, debts owed or other commodities.

Problems with the gold standard include the finding the metal: greater availability leads to inflation; scarcity leads to deflation, which limits demand and cuts investment. The coins themselves are subject to clipping, people cutting small bits off the edges, and hoarding, as Germany experienced in the lead up to its hyper-inflation in the early-1920s. Harsh punishments will not help bolster the currency as people become wary of handling clipped coinage, avoid all but the most essential transactions or resort to barter. Sooner or later gold and silver currencies have to be debased.

Precious metal was commonly used in all pre-modern currencies but coins were relatively rare only circulating amongst the few. To have a wider cash-based economic system required a different approach. It was Sir Isaac Newton (scientist and habitué of the Bank of England’s last one pound note) who formally established the gold standard, whereby paper currency was backed by gold reserves, in 1717. Other European countries adopted the gold standard in the 1800s, the recently united Germany being one of the last to do so in 1872. However, countries left the gold standard in the First World War. Churchill, as Chancellor of the Exchequer, put Britain back on the gold standard in 1925. Criticised for the deflation that led to 1926’s General Strike and for the disastrous consequences of Britain’s inability to respond to the Wall Street Crash, the National Government took Britain off the gold standard for good in 1931. The Bretton Woods financial system established in 1946 left the American dollar as the only currency backed by gold, with all other major currencies pegged to the dollar. This persisted until the Nixon Shock 1971 when draws on US gold reserves, mainly from France, and the costs of the Vietnam War took America (and the world) off the gold standard.

British coins continued to contain silver for many years after leaving the gold standard. The original 0.925 quality silver in half-crowns, florins, shillings and sixpences was cut to 0.500 in 1920, just enough to still merit the name silver, and our coins stayed this way until the dollar became the world’s reserve currency in 1946. The First World War, Great Depression and Second World War had largely forced other countries to abandon silver earlier. Switzerland continued minting in silver until 1969, but if you visit today you won’t find any 5 Franc coins older than the first cupro-nickel coins issued in 1968. Gold and silver coins are generally only found in commemorative coins issued for collectors.

Coins, as well as a means of exchange, convey historic value. They are metal, mass-produced and therefore survive. The designs portray the issuer’s political and artistic views. If the Isis coinage is produced the best that could be hoped for is that it becomes, after sufficient passage of time to let its memories of its crimes fade, a numismatic foot note. Though it is to be hoped that, like the disgusting zinc coins that were all the Third Reich could afford to produce in the Second World War, they are viewed with as much disdain by collectors.

Photo: Getty Images
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What do Labour's lost voters make of the Labour leadership candidates?

What does Newsnight's focus group make of the Labour leadership candidates?

Tonight on Newsnight, an IpsosMori focus group of former Labour voters talks about the four Labour leadership candidates. What did they make of the four candidates?

On Andy Burnham:

“He’s the old guard, with Yvette Cooper”

“It’s the same message they were trying to portray right up to the election”​

“I thought that he acknowledged the fact that they didn’t say sorry during the time of the election, and how can you expect people to vote for you when you’re not actually acknowledging that you were part of the problem”​

“Strongish leader, and at least he’s acknowledging and saying let’s move on from here as opposed to wishy washy”

“I was surprised how long he’d been in politics if he was talking about Tony Blair years – he doesn’t look old enough”

On Jeremy Corbyn:

"“He’s the older guy with the grey hair who’s got all the policies straight out of the sixties and is a bit of a hippy as well is what he comes across as” 

“I agree with most of what he said, I must admit, but I don’t think as a country we can afford his principles”

“He was just going to be the opposite of Conservatives, but there might be policies on the Conservative side that, y’know, might be good policies”

“I’ve heard in the paper he’s the favourite to win the Labour leadership. Well, if that was him, then I won’t be voting for Labour, put it that way”

“I think he’s a very good politician but he’s unelectable as a Prime Minister”

On Yvette Cooper

“She sounds quite positive doesn’t she – for families and their everyday issues”

“Bedroom tax, working tax credits, mainly mum things as well”

“We had Margaret Thatcher obviously years ago, and then I’ve always thought about it being a man, I wanted a man, thinking they were stronger…  she was very strong and decisive as well”

“She was very clear – more so than the other guy [Burnham]”

“I think she’s trying to play down her economics background to sort of distance herself from her husband… I think she’s dumbing herself down”

On Liz Kendall

“None of it came from the heart”

“She just sounds like someone’s told her to say something, it’s not coming from the heart, she needs passion”

“Rather than saying what she’s going to do, she’s attacking”

“She reminded me of a headteacher when she was standing there, and she was quite boring. She just didn’t seem to have any sort of personality, and you can’t imagine her being a leader of a party”

“With Liz Kendall and Andy Burnham there’s a lot of rhetoric but there doesn’t seem to be a lot of direction behind what they’re saying. There seems to be a lot of words but no action.”

And, finally, a piece of advice for all four candidates, should they win the leadership election:

“Get down on your hands and knees and start praying”

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.