Why the new ISIS currency is doomed

ISIS plans to create its own currency
ISIS plans to create its own currency

If history is any guide, the new ISIS plot to create its own currency is destined to fail.

That's according to gold and currency expert Axel Merk of Merk Investments in San Francisco.

ISIS unveiled its plan for gold, silver and copper coins on Thursday in an effort to distance themselves from the West. The currency's value will be based on the actual worth of the metals.

Merk says the plan to use the metal currency could work in theory, but it won't last long.

"They realize the international banking system is not very open to them," he said. "If they use paper currency, they'll have rampant inflation."

Related: Metals meltdown: Gold isn't glittering

Pegging their currency to the dollar as many smaller countries do is obviously not an option for ISIS. They stated that the point of the new currency is to remove Muslims from the "global economic system that is based on satanic usury."

isis currency
New ISIS gold coins

The golden flaw: The challenge, Merk claims, will be getting citizens to accept the monetary system and keep it going. He said it's likely that people in ISIS-controlled territory will chip away at the coins in an effort to extract the worth of the metals. They're also likely to hoard them.

Related: Mideast tries to starve ISIS of cash

Eventually, ISIS will run out of gold to finance its activities and will be forced to lower the metal contents in the coins, which would render them useless. That's been the case throughout history with ancient coin systems, Merk claimed.

"They're going to have to cheat and print money like every central bank does," he quipped.

On the other hand, ISIS rules by violence, and citizens might be scared not to accept whatever form of money ISIS puts out.

"They chop people's heads of if you don't accept...it's the currency of the land," he said.

ISIS is bad publicity for businesses
ISIS is bad publicity for businesses

Economic woes: ISIS may also face problems maintaining its currency going forward as the U.S. led airstrikes intensify. While the group is flush with cash from oil sales, ransoms, and taxes, there are indications that the U.S. led airstrikes are taking a toll by limiting its ability to operate. Additionally, countries in the Middle East are working towards a plan to cut off ISIS from raising funds from wealthy sympathizers in the region.

"A vibrant currency requires a vibrant economy. You don't get one without the other." said Merk.

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