The Ruling on Currency Exchange

Author: Dr. Muhammad Zia-ur-Rahman Azmi (Rahimahullah)

Ruling on Currency Transactions

Engaging in currency exchange is permissible under the following conditions:
  1. No Prohibition on Buying and Holding Currency:
    There is no harm if a person buys dollars or any other currency, keeps it in their possession, and later sells it when its value increases.
  2. Transactions Must Be in Cash (Immediate Payment):
    Currency exchange should be conducted on a cash-for-cash basis and not on credit. For example:
    • Exchanging Saudi Riyals for US Dollars.
    • Exchanging Saudi Riyals for Iraqi Dinars.
  3. Immediate Exchange Requirement:
    The transaction must occur hand-to-hand, similar to the rules for exchanging gold for silver.

Islamic Guideline

Currency exchange should follow the principle of "نقد بہ نقد" (cash-for-cash) to avoid any form of delay or uncertainty, which is prohibited in financial dealings in Islam.

— [Ibn Baz, Majmoo’ al-Fatawa wa al-Maqalat: 59/19]

Key Points

Permissibility of Currency Trading:
Buying and selling currencies for profit, provided it is done lawfully and without exploitation, is allowed in Islam.

Prohibition of Deferred Payment:
Deferred payment in currency exchange transactions is not permissible to prevent uncertainty (gharar) or interest (riba).

Similarity with Gold and Silver Transactions:
Currency is treated like gold and silver in Islamic finance. Hence, transactions must be completed immediately.

Conclusion

Currency exchange is permissible as long as it adheres to Islamic guidelines, such as immediate payment and avoiding deferred transactions. Muslims engaging in such transactions should ensure compliance with these rules to avoid any involvement in riba (usury) or gharar (uncertainty).
 
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