This is based on the following:(1) Paper currency has become a commodity, and has taken the place of gold and silver when dealing with them, and it is through it (i.e., paper currency) that we give a value to items in this day and age due to the absence of using gold and silver now, and people are confident to invest and store it, and debts are paid and generally remitted through it, despite the fact they have no innate value, rather it is to do with an external factor, and that is gaining confidence in it as an intermediary in trade and exchange, and that is the secret behind its holding value. [2053] Refer to: [(Majalah Majma al-Fiqh al-Islami)) third issue (3/1893)].
(2) The reality of the cause for there being usury in gold and silver is the value they stand for, and this same cause is found in paper currency [2054] Refer to: [(Majalah al-Fiqh al-Islami al-Duwali)) third issue (3/1893)].
(3) Trading in banknotes (currencies) [2055] What is meant by trading in banknotes (currency trading) is: buying currencies to sell them for profit; for example, selling a currency in Saudi Riyals for a currency in Egyptian pounds. Refer to: [(Sharia Standards)) (P.70)].
Ruling of trading in banknotes (currencies):
Exchanging currencies counts as a form of trading [2056] The first decision in the thirteenth session. [(Qaraarath al-Majmah al-Fiqh al-Islami) (P 311)] Third issue. and is permissible with the condition of immediate exchange in the same sitting of the contract, irrelevant of whether they are the same type or not, and with the condition of being the same amount if they are of the same type, [2057] If the type is uniform - like selling Saudi currency for Saudi currency - here equality is required; for example, selling a hundred Saudi Riyals for a hundred Saudi Riyals. as confirmed by the Permanent Committee of Saudi Arabia, [2058] In a fatwa issued by the Permanent Committee, regarding the trade of currencies, it was stated: "It is permissible under the condition of immediate exchange in the same sitting, whether the type is the same or different, and under the condition of equality if the type is the same." [(Permanent Committee Fatwas - The first set)) (13/ 447)]. the Fiqh Council affiliated with the Muslim World League, [2059] In a resolution of the Islamic Fiqh Council, it was stated: (Selling currency for another currency is considered exchange... If the terms of the Sharia for exchange are observed - especially immediate exchange in the same sitting – then the contract is legally permissible." [(Qaraarath al-Majmah al-Fiqh al-Islami)) (P 311)]. the Islamic Fiqh Council affiliated with the Organisation of Islamic Cooperation, [2060] In a resolution of the Islamic Fiqh Council, it was decided: "After reviewing the reports submitted to the Council on the subject of "currency trading," and listening to the discussions around it, the following was decided: Firstly: reaffirmation of the Council's Resolutions no. 21 (9/3) regarding paper currency and the change of currency value, and no. 63 (1/7) regarding the financial markets, third paragraph: trading commodities, currencies, and indices in regulated markets no. (2): trading currencies, and no. 53 (4/6) regarding possession, the second paragraph: (1-g). Secondly: future selling of currencies and the appointment of exchange is not permissible according to Sharia. This is indicated to in the Quran, the Sunnah, and consensus of the Ummah. Thirdly: Usury and currency trading and exchange without compliance with Islamic Sharia rules are among the most important causes of the economic crises and fluctuations that have hit some countries' economies." [(Islamic Fiqh Council Magazine)) eleventh issue (1/ 613)]. the Accounting and Auditing Organization for Islamic Institutions, [2061] Refer to: [(Sharia Standards)) (P.55)]. the Authority of Senior Scholars of Saudi Arabia, [2062] In a resolution of the Senior Scholars Authority, it was stated: "It is permissible to trade paper currency if they are of different types and is passed on hand-to-hand; for instance, a silver Riyal can be sold for two Riyals paper, and the Lira can be sold for a Saudi Riyal, whether the Riyal is silver or paper, and the Dollar can be sold for five Riyals or less or more, if done hand-to-hand." [(Research of Senior Scholars Authority)) (1/ 79), (1/ 93)]. and bin Baaz. [2063] Ibn Baz said: "Selling and buying in currencies is permissible, but with the condition of hand-to-hand receipt; meaning: if he sells Libyan currency for an American or Egyptian currency, or any other, hand-to-hand; there's no harm, like if he buys Dollars with Libyan currency, hand-to-hand; whether he receives or delivers, or bought Egyptian or English currency, or any other, by Libyan currency or another, hand-to-hand." [(Fatawah Nur 'ala al-Darb)) (19/ 159)].
Evidence from the Sunnah: It is reported that Abi Bakrah (may Allah be pleased with him) said that the Prophet said, "Do not sell gold for gold unless they are equal in weight, and no not sell silver for silver unless they are equal in weight and sell gold for silver and silver for gold as you like." [2064] Related by Al-Bukhari (2175), and the wording is his, and Muslim (1590).
Point of Extrapolation:
The analogy of paper currencies and coins on gold and silver currencies mentioned in the authentic hadith, and the currency of every country is considered a different type to another country because they are symbolic currencies, therefore they differ in terms of denomination depending on the party considering it a form of payment. [2065] Refer to: [(Sharia Standards)) (P. 65- 66)].
Fourthly: Buying gold and currencies in the forex market
1- Ruling of buying gold and currencies in the forex market:
Buying gold and currencies at present prices in the forex market is permissible, provided that the exchange of both counterparts takes place in a legally binding manner i.e., each party must hand over approved documents confirming the sale and purchase, and this is what is indicated towards by the Islamic Fiqh Council affiliated with the Organisation of Islamic Cooperation, [2066] The decision of the Islamic Fiqh Council, decision number (55/4/6) regarding possession (forms of it - especially those that are emerging - and its rulings) was made which states: "Upon reviewing the studies presented to the council on the subject of 'possession: its forms - especially those that are emergent - and its rulings', it was decided: Firstly: the possession of money physically, as is the case when taken by hand, weighing, or measuring food, or transferring to the possessor’s control; is achieved legally by holding the authority to dispose it, even if physical possession has not taken place, and the manner in which possession can be taken cane differ according to the situation. Secondly: From the types of legal ways to take possession that are compliant to the Sharia and custom.: 1- Bank entry of an amount of money of money in the client’s account in the following cases: (a) If an amount of money is deposited into the client’s account, either directly or through bank transfer. (b) If the client carries out a valid exchange contract between him and the bank in the case of buying one currency for another in the client’s account. (c.) If the bank withholds – by decision of the client- an amount going from his account to another with another currency, in the same bank or another, for the benefit of the client or the beneficiary, and it is upon the banks to adhere to the rules of transactions set out by the Sharia. Delaying a bank entry is excusable in the form that enables the beneficiary to achieve actual receipt, within the commonly accepted periods in the trading markets, and this is because it is not permissible for the beneficiary to use the currency during the excused period except after the bank entry when actual receipt is possible. [(Islamic Fiqh Council Magazine), sixth issue (1/ 772)]. the Permanent Committee of Saudi Arabia, [2067] The Permanent Committee issued a fatwa stating: "As long as the situation is that the amount is immediately deducted from the buyer's account deposited in the bank and is immediately transferred to the seller's account, and there are no fees for this transfer; then the sale in this form has the same ruling as possession in the same gathering; Gold can be sold for paper currency and the price can be paid through the mentioned point of sale; because possession takes place in the gathering of the contract." [(Permanent Committee Fatwas) (13/503)]. and the Jordanian Fatwa Authority, [2068] A fatwa from the Jordanian Iftaa Committee states: "Legal possession only replaces actual possession when two conditions are met: The first: the common business practice and international laws are to accept these means and consider them to be complete possession. Here, economic and legal norms in the transactions of possessions are observed as long as they do not contradict with the principles of Sharia, amongst the examples of this are deposits, bank entries, and cheques with a withdrawable balance. The second: they should not contradict with the principles of Sharia regarding taking possession items that constitute ribaa (interest) hence, it is not permissible that the possession be deferred or in debt, rather it must be completely taken possession of." [(Official Website of Jordan's Ifta' Committee - Fatwa number 3035)]. this is because the requirement for exchange is mentioned in the Sharia in an absolute manner, and anything stated absolutely must be referred to the norm, and the norm considers banking entries as a form of valid exchange. [2069] Refer to: [(Islamic Fiqh Council Magazine) sixth issue (1/ 771), also see: [(Al-Mughni) by Ibn Qudamah (4/85)]. Because the legal possession took place in the session; that is by transferring the price in the seller’s account, and the valued item in the buyer's account. Also refer to: [(Permanent Committee Fatwas) (13/503)].
2- Trading in currencies and gold at future prices in the forex market:
It is prohibited to trade in currencies and gold at future prices in the forex market, as confirmed by the Islamic Fiqh Council affiliated with the Organisation of Islamic Cooperation, [2070] It was stated in decision number 65/1/7 on Financial Markets the following: (The Islamic Fiqh Council convened during its seventh conference in Jeddah, Kingdom of Saudi Arabia, from the 7th to the 12th of Dhu al-Q’idah AH, corresponding to the 9th-14th May 1992. After evaluating the papers brought forward to the conference regarding the topics: “Financial Markets: Shares, Options, Commodities, Credit Cards,”, and after listening to the discussions surrounding the topic, it has been decided that: Trading in commodities and currencies in organized markets is done in four ways: The first way: The contract includes the right to deliver the sold item and receive the price immediately, with the existence of the commodities or receipts representing them in the seller's possession. This contract is permissible according to known trading conditions. The second way: The contract includes the right to receive the sold item and the price immediately, with their availability guaranteed by the market authority. This contract is permissible according to known trading conditions. The third way: The contract stipulates delivering a specified commodity in the future and paying the price at the time of delivery and includes the requirement that the deal ends with the actual delivery. This contract is not permissible due to delay in delivering both counterparts. It is possible to alter this so that it meets the requirements of a ‘salam’ contract and if it does then the contract will be valid, and also a purchased commodity cannot be sold before it is received. The fourth way: The contract stipulates delivering a specified commodity in the future and paying the price at the time of delivery, without the condition that the deal ends with actual delivery. Such contracts, the most common in commodity markets, are not permissible." 2. Trading in currencies: Trading in currencies is to be carried out in sanctioned markets through one of the four ways mentioned above. And it is not permissible to buy or sell currencies using the third and fourth method. As for the first and second method it is permissible to buy and sell currencies with the condition of following the well-established trading rules. [(Islamic Fiqh Council Magazine), issue 7 (1/615,616)] the Fiqh Council affiliated with the Muslim World League, [2071] The Islamic Jurisprudence Assembly affiliated to the Muslim World League, in its decision number 30 (1/7) about the Securities and Commodities Market, states: (The types of deferred contracts that are conducted on the exchange, i.e., on shares and commodities that are not the seller's property in the way they operate in the stock market, are not permissible as it includes the selling of something one does not own on the basis that they will buy it in the future, and delivery of it will be at an appointed time, and this is prohibited in the Sharia as is indicated in what has been authentically reported from the Prophet ?, he said: ((Do not sell that which you do not possess)), and similar to this is what has been authentically reported by Ahmed and Abu Dawud from Zaid ibn Thabit that the Prophet Muhammad ? prohibited selling commodities where they were purchased until traders possess them." [(Decisions of the Islamic Jurisprudence Assembly in Makkah) (Page: 142)] the Permanent Committee of Saudi Arabia, [2072] A fatwa from the Permanent Committee states: "It is not permissible, as was mentioned in the answer to the first question, that the compensation between the two cash equivalents (gold and silver) and their equivalents (like banknotes) should be hand-to-hand. Delaying payment in these cases involves 'riba al-nasa’' (deferred interest), which is absolutely forbidden, whether the exchange value for the deferred period varies from its immediate value or not." [(Permanent Committee Fatwas) (13/442)]. Bin Baaz [2073] Ibn Baz said: "If a currency is sold for another currency on a deferred basis, such as selling dollars for Yemeni currency or Egyptian pounds or sterling or Jordanian dinars or Iraqi dinars on a deferred basis, this is considered usury. This is because these currencies take the same status in Islamic Law as gold and silver. Therefore, it is not permissible to sell them for each other on a deferred basis; rather, they must be given and taken in the same setting. As for surplus usury, it occurs if the same currency is sold for itself with an addition. For instance, if a sterling pound is sold for a sterling pound plus an addition, such as one sterling pound for two, it is usury, even if the transaction is hand to hand, or selling Saudi currency, ten riyals for eleven riyals, this is surplus usury. If it is on a deferred basis, it is both surplus and deferred usury." [(Majmu Fatawa bin Baaz) (19/174)]. and the Jordanian Fatwa Committee. [2074] A fatwa from the Jordanian Fatwa Committee stated: "Legal possession can replace actual possession if [2074] A fatwa from the Jordanian Fatwa Committee stated: "Legal possession can replace actual possession if two conditions are met: First: The general commercial and international laws accept these means and consider them as complete possession. In this regard, economic and legal customs are respected in the operations of possession, provided they do not contradict the rules of Sharia. Examples include deposit, banking entry, checks with available balance... Second: It does not conflict with Sharia rules for the possession of usurious funds, so possession cannot be deferred or a debt, rather, possession must be taken directly." [(Official Website of Jordan's Fatwa Committee - Fatwa number 3035)].
This is because of the following:
(1) It is not permissible to sell currencies on credit according to the Sharia, as indicated by the Quran, Sunnah and consensus of the ummah. [2075] Refer to the [(Majallah Majma Fiqh al-Islamic)] issue 11 (1/613).
(2) The exchange does not take place in the same sitting as the contract, neither literally nor by legal standards, and this is from a requirement of sales involving usuary based categories, i.e. gold, silver and paper currency. [2076] Refer to the [(Majallah Majma Fiqh al-Islamic al-Duwali)] issue 7 (1/615,616).
Fifthly: Negotiation in currency exchange [2077] The concept of the issue is: The declaration of two individuals about their desire to exchange currencies in the future at a specific or unspecific time that has impacts on them. Refer to [(Sharia Standards)] (Page: 71), [(Mu’jam al-Mustalahaat al-Maliyah wal Iqtisaadia fi lugathil Fuqahah)] by Nuzih Hammad (Page: 451).
1- Binding engagement (or promise to enter a future contract) for both parties.
The engagement (of promising to enter a future contract) becomes prohibited in currency trading if it is binding for both parties, as stated by the decision of the Islamic Fiqh Academy (that is) affiliated with the Organization of Islamic Cooperation, [2078] In decision number 102 (5/11), it states: "It is not permissible under the Sharia to sell currencies in installments, or to schedule their exchange. This is indicated by the Quran, the Sunnah, and the consensus of the Ummah." [(Islamic Fiqh Council Magazine)] issue 11 (1/613). , the Islamic Fiqh Academy (that is) affiliated with the Muslim World League, [2079] The first resolution in the thirteenth session regarding the subject of agreeing to enter a future contract to sell currencies against each other says: "The subject was considered, and the following conclusions were reached: First: Selling one currency for another is considered an exchange. Second: If a currency exchange contract is made with all its Shari’conditions, especially mutual delivery in the contract session, the contract is permissible in the Sharia. Third: If an exchange contract is made, along with the agreement to delay the acceptance of both or one of the counter-values to a known date in the future, such that the two currencies are exchanged simultaneously at one time at the known date; the contract is not permissible, because possession is a condition for the validity of the completeness of the contract, and it (possession) did not occur." [(Resolutions of the Islamic Fiqh Council - Third Edition)] (p.311). the Accounting and Auditing Organization for Islamic Financial Institutions, [2080] The Standard No. (1), issued on May 31, 2000, states: 1. "It is forbidden to make appointments in currency trading if it is binding on both parties, even if it is for dealing with the risks of currency depreciation. As for the promise, it is permissible, even if binding. 2. It is not permissible - what is called in banking fields - "parallel buying and selling of currencies"; due to the existence of one of the following reasons for corruption: a. Not delivering and accepting the two currencies (bought and sold); hence it is from selling the currency on time. b. Making a condition of an exchange contract in another exchange contract. c. The binding appointment for the two parties of the exchange contract." [(Sharia Standards)] (p. 59). the Shariah Board of Al-Bilad Bank, [2081] The decision of the Shariah Committee No. (18) regarding the Shar’i rules for exchange, in which it stipulated the rules for exchange, which include: "It is forbidden to make appointments in currency trading if it is binding on both parties, even if it is for dealing with the risks of currency depreciation." Also, in the decisions of the Shariah Committee of Bank Al Bilad, it states: "(Rule 459): Binding promises of a future exchange of currencies between two parties are not permissible." [(Rules Extracted from the Decisions of the Sharia Committee of Bank Al Bilad)] (p. 137). and the fatwas issued in the Al-Baraka Islamic Economics Symposium. [2082] The Fatawa of the Al-Baraka Islamic Economics Symposium states: "What is the opinion on the appointment of a currency purchase of different kinds at the price of the day of agreement "the day of the appointment," as long as the delivery of both counter-values is deferred; so that the exchange in the future is hand to hand; whether this appointment is binding, and in case it is non-binding? The Fatwa: If this appointment is binding on both parties, then it enters the general ban on the sale of the debtor with the debtor, "the sale of debt for debt", thus it is not permissible, and if it is non-binding on both parties, it is permissible." Al-Barakah's first symposium (Fatwa No.13), [(Sharia Decisions in Economics / Barakah Pot)] (p. 83).
This is for the following reasons:
(1) If the engagement is binding for both parties, it falls under the general prohibition of the sale of the debtor with the debtor, (the selling debt for debt), making it impermissible. [2083] Al-Barakah's first symposium (Fatwa No.13), [(Sharia Decisions in Economics / Barakah Pot)] (p. 83)
(2) Because exchange requires mutual handover at the session of the contract, and the promise involves the delaying of the handover, and this goes against the terms of exchange (laid out by our religion). [2084] For more, refer to: [Mawaahib Al Jaleel] by Al-Hattab (6/139).
2- Non-binding promises (of future contract) [2085] Refer to the fourth section: Appointment upon Exchange
Promises of a future contract are permissible in currency trading if they are not binding for both parties. [2086] An example could be when two individuals agree to exchange currency after a month. They specify the type of currency and its exchange rate. The mutual handover takes place when the due date arrives.
Sixthly: The ruling of Al-Mu`wadhah (the contract where one party agrees to sell a commodity to another party at an agreed-upon price on a later date) for commitment to sell currencies in the future. [2087] This contract involves a person or a financial institution committing to sell a certain currency to a certain individual at a future date with a predetermined exchange rate, and compensation is received for this commitment. Traders use this transaction to hedge against possible losses due to the nature of dealing with currencies, especially with changing exchange rates; this may occur in deferred transactions. Refer to: [(The Islamic Fiqh Council affiliated to the Muslim World League)], in its twenty-second session, the third resolution.
An Al-Mu`wadhah contract to sell currencies in the future is not permissible and cannot be traded, as stated by the decision of the Islamic Fiqh Council (that is) affiliated with the Muslim World League. [2088] Refer to: [(The Islamic Fiqh Council affiliated to the Muslim World League)], in its twenty-second session, the third resolution.
This is for the following reasons: [2089] Refer to: [(The Islamic Fiqh Council affiliated to the Muslim World League)], in its twenty-second session, the third resolution.
(1) Because the (use of) forbidden means are forbidden. If the contract is for a deferred exchange, it is not permissible by text and consensus, as the contract of Al-Mu`wadhah for the commitment to sell currency in the future is invalid and void.
(2) Because the interest of the contracting parties in hedging is opposed by the intention of the legislator from the interests of contracts, as it is the result of a contract that resembles risk and deception, so it is a nullified interest.
(3) Because this commitment is not considered wealth nor a legitimate benefit that can be contracted upon.
Seventhly: Ruling on linking deferred payments and debts to the value of gold and silver or to price indices [2090] The Index: It's a calculated number using a specific statistical method, aimed at determining the volume of change in a given market. Transactions corresponding to it occur in some global markets. Refer to: [(Journal of the Islamic Fiqh Council)] 7th issue (1/716).
It is not permissible to link deferred payments and debts to the value of gold and silver or to price indices. This is stated in the decision of the Islamic Fiqh Council (that is) affiliated with the Organization of Islamic Cooperation, [2091] The Islamic Jurisprudence Assembly issued a decision stating that it is not permissible to link deferred debts when the contract is concluded. Resolution No. 115 (9/12), held in Riyadh, Saudi Arabia, from 25 Jumada al-Akhirah 1421H to 1 Rajab 1421H (23 - 28 September 2000). the Islamic Fiqh Council in India, [2092] Decision No. 81 (2/19), stating: it is not permissible to link deferred payments and debts to the value of gold and silver, or to a price index." Transferred from [Wathaiq Al Nawaazil] by Al Jizani (2/733). the Accounting and Auditing Organization for Islamic Financial Institutions, [2093] Shariah Standard No. (27) on illegitimate ways of using indices states: It is not permissible to use the indices themselves for trading on them, and on their changes in financial markets, by buying and selling the indices. The implication is giving or receiving money simply due to the occurrence of a certain result, without actually buying or selling assets that the index represents for something else, and this happens even with the intention of hedging against potential losses. It is not permissible to link the amount of the monetary debt at the time of the creditor with the price index. [(Sharia Standards)] (p. 719 - 720). and the Dar Al-Ifta of Jordan; [2094] As stated in a fatwa issued by the Jordanian Dar Al-Ifta: A borrower can repay his loan in a different form than what he borrowed, for example, gold instead of paper money. However, there are two conditions: First, this should not have been agreed upon at the time when the loan was taken (when there is unification in the cause of usury), this condition appears only at the time of repayment. If gold was agreed upon to be the mode of repayment instead of paper money without immediately fulfilling this, it would result in Riba Al-Nasee’ah (a type of usury that involves a delayed exchange). Second, the price of gold on the day of repayment should be adopted, not the day of the loan. (See: The official website of the Jordanian Dar Al-Ifta (Fatwa No: 2032)). this is due to the great deception and gross ignorance that this association entails. [2095] See: (Magazine of the Islamic Jurisprudence Assembly) Issue twelve (4/292)
feqhia
