Republican presidential candidate Ted Cruz’s support for reviving the gold standard is likely giving establishment Republicans huge doubts about embracing him. Their concerns are well-founded -- and not only because the gold-backed dollar has been thoroughly discredited as good economic policy. Reviving the gold standard is also a key platform of the Islamic State.
The notorious extremist group announced in September last year that gold and silver would be the currencies in its new pseudo-state. Its monetary agenda was rolled out in a slick 55-minute video, "The Rise of the Khilafah: Return of the Gold Dinar."
Click here to watch the full English-language video.
The Islamic State's gold pitch is part of its own particular vision for reviving an Islamic caliphate. But the video’s embrace of doomsday economics and anti-Semitic conspiracy theories hews closely to a narrative popular in ultra-conservative circles in Western countries.
How Conspiracy Theories Appeal To Disaffected People
Attacking the capitalist system is a way for the Islamic State to appeal to the young underprivileged masses of the Muslim world, who are often angriest about corruption and economic inequality in their own countries, according to Abdulaziz Sachedina, chair of the Islamic studies department at George Mason University. Secular revolutionaries used the same tactic to capture the minds of a previous generation of Middle Eastern youth.
Whenever "you are somehow critiquing the system in place at the moment," that's "very appealing to the underprivileged members of society,” Sachedina said. “You do find that they resonate with it. ‘Somebody is questioning the multibillionaires living in our midst.’”
Conspiracy theories thrive on the left and right when confidence in powerful institutions has deteriorated.
“When trust disintegrates, then you are open to these Paul Reveres who are spreading the ‘real truth’ about what happens to you in your life,” said Bob Goldberg, a professor of U.S. history at the University of Utah who specializes in studying conspiracy theories.
“I could see how ISIS could be very attuned to making an argument that all of these problems with money and the economy are the result of a small group making plots for nefarious ends,” he added.
And once people have turned to radical explanations, it is often difficult to supplant their belief in their new truths.
At least that is the experience that Dean Baker, co-director of the progressive Center for Economic and Policy Research, describes having with American "gold bugs."
“Thinking of it as a religion is right,” Baker said. “Nothing can shake these people’s faith in gold -- no matter what evidence you give them.”
Why ISIS Is Quoting Ron Paul
Whether Islamic State leaders sincerely believe what they are peddling about the gold standard or are merely using the idea to achieve other means, their propaganda video provide a detailed explanation of their fixation with gold. The narrator echoes the talking points of American gold standard proponents that a floating currency allows the Federal Reserve to print money without limit, which reduces the value of people’s savings.
In fact, the video gives over a chunk of time to Ron Paul, the former U.S. congressman who has long made restoring the gold standard a pillar of his small-government, libertarian agenda. "As Ron Paul says," the narrator offers at one point, suggesting a familiarity and camaraderie with Paul that would likely chafe him.
The Ron Paul Institute did not respond to a request for comment about the Islamic State's use of the former congressman's name or the fact that the group appears to endorse one of Paul’s core policy positions. The Cruz presidential campaign did not respond to a request for comment about their common policy position either.
The Paul clip featured in the video criticizes the Federal Reserve’s post-financial crisis policies designed to boost economic demand by keeping interest rates low. “People who have saved,” Paul says, “they’re being robbed.”
“Thinking of it as a religion is right. Nothing can shake these people’s faith in gold -- no matter what evidence you give them.”
The video argues that the U.S. decision to remove the dollar from the gold standard in 1971 would have generated mass inflation had the U.S. government not also conspired to ensure that oil was traded in U.S. dollars. The so-called petrodollar system, the theory goes, keeps demand for the dollar constant, which props up its value while preventing hyperinflation.
The video also asserts that all of this was a plot by “the Jews,” who used positions of leadership at the Federal Reserve to get the U.S. to do their bidding. “In this age, the seeds of corruption were sown by America and cultivated by the Jews,” the video states as images of former Fed chairmen Alan Greenspan and Ben Bernanke, both Jewish, appear on screen.
Historically, the specter of the subversive “Jewish banker” has been a ubiquitous feature of economic conspiracy theories.
“Trot out the usual suspects, and the usual suspects, over and over again, are the Jews,” said Goldberg, the Utah professor. “Faces we don’t know -- but these are the hidden hands, the puppet masters that control the world.”
The video argues that the petrodollar system is designed to subjugate the other nations of the world by forcing them to export products to the U.S. and re-invest the dollars they earn from the exports in U.S. Treasury bonds. But the Islamic State also shares the belief of U.S. gold bugs that the system could come crashing down at any moment if those bondholders began offloading their Treasury bonds in a concerted campaign to weaken the dollar. The video quotes gold guru Jim Rickards to describe the scenario.
Unlike Rickards, who views the collapse of the dollar as a negative outcome, ISIS sees it as an opportunity to replace the dollar’s power with its own gold and silver currencies.
Not Actually How Modern Economics Work
The economic argument laid out by the Islamic State and the gold bugs does not hold up. Companies are free to trade oil in whatever currencies they want -- and in fact, many choose to buy and sell in euros. The vast majority of oil is traded in dollars not because of any secret diktat, but because companies and governments find it the most useful currency to do business with, thanks to the strength of the U.S. military and economy since World War II.
The dollar “just became the norm -- just like the English language,” Baker said.
Nor is there any law or treaty requiring China or the oil-producing Arab nations to hold on to the dollars they receive and re-invest them in U.S. Treasury bonds. They choose to do that because it is safe.
What is more, the strength of the dollar has always been a double-edged sword for the United States, since it makes U.S. exports less competitive. If some countries began trying to tank the dollar for strategic reasons, other nations would likely begin buying up bonds to prevent U.S. exports from dominating world markets.
Nonetheless, Yasir Qadhi, an Islamic theologian at Rhodes College in Memphis, Tennessee, suggests that someone in the Islamic State hierarchy finds the economic arguments for a gold standard compelling.
“It’s pretty clear that there are some people high up in their chain that have these ideas and now have an opportunity to implement them,” Qadhi said.
So Does This Have Anything To Do With Islam?
The gold standard as proposed by the Islamic State diverges from the plans of Ron Paul, Ted Cruz and other American proponents. Unlike the American gold enthusiasts who would make paper currency redeemable for gold, the Islamic State claims to have made actual gold and silver coins the sole media for commerce in the areas it controls.
True to its name, the group argues that gold and silver are the only Islamically acceptable currencies, since they were used during the time of the Prophet Muhammad and the early Islamic empires.
“With the permission of Allah, the oil will only be sold for gold, not for Federal Reserve bank notes or any other fraudulent note that the tawaghit [tyrants] have imposed on the people,” the video narrator states. “And in order to realize this objective and the great shar’i [legally prescribed] goal of protecting the people’s wealth, the shura council of the khilafa [caliphate] tasked the treasury of the Islamic State with returning the true and ultimate mediums of exchange and shar’i measures of all goods and services for the ummah [the Islamic community] through the minting of the silver dirham and the gold dinar.”
The gold dinar and silver dirham coins are described in the Quran and other texts as the currency used by Muhammad and his followers. But the great majority of Islamic scholars reject the notion that Islamic law requires contemporary Muslims to abolish fiat currencies -- money not backed by a physical commodity -- and use gold and silver instead.
“There is no ruling in the Sharia which would say that this is the only way of guaranteeing exchange of goods and services among people,” George Mason University’s Sachedina said.
The Islamic State's quest to replace paper money with gold and silver is “definitely not theology,” according to Qadhi, who also serves as a dean of academic affairs at Al Maghrib Institute, an Islamic education center in Memphis.
“Fiat currency is a modern issue,” Qadhi said. “How can the Quran mention anything about it?”
Abbas Mirakhor, a former senior official at the International Monetary Fund and a pioneer in the contemporary field of Islamic finance, said that what makes financial interactions Islamic is not the medium of exchange, but whether they honor the principle of risk sharing. That principle is why Islamic law prohibits lending with interest payments, since that transfers risk from the lender to the borrower, according to Mirakhor, who is currently chair of Islamic finance at the Global University of Islamic Finance in Kuala Lumpur, Malaysia.
Malaysia is coincidentally the only majority-Muslim nation where an attempt to revive the gold standard for both professed religious and economic reasons has gained traction in recent years.
“Fiat currency is a modern issue. How can the Quran mention anything about it?”
Despite its supposedly religious grounding, the Islamic State's monetary policy is more likely part of a broader attempt to cast the group as the leader of a struggle against Western domination. In this narrative, the dollar is “representative of imperialism to take over the Muslim lands,” said Jacob Olidort, a fellow at the Washington Institute for Near East Policy, who specializes in conservative and fundamentalist Islamic movements.
The video describes the September 11 attacks as the “first blow to their satanic financial system, pulverizing the twin idols of capitalism.” The establishment of the Islamic State with its own gold- and silver-based currency is “the second blow to America’s capitalist financial system of enslavement ... casting into ruins their fraudulent dollar note.”
Qadhi, who works to dissuade Muslim American youth from joining the Islamic State and other radical groups, said its primary tool for recruiting young Western Muslims is an appeal to “political grievances,” like the Syrian government’s oppression of its people or the Israeli government’s mistreatment of Palestinians. A new economic system is one of the “secondary or tertiary issues.”
“They are offering a package deal: ‘We have an entirely new civilization,’” Qadhi said.
He also noted the Islamic State may have more practical considerations as well.
“They understand they cannot be a part of the global economic system,” Qadhi said. “If they were to print money, who is going to accept that money?”