Foreign Currency Exchange and the Islamic Perspective

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

The conditions for the validity of exchanging currencies are:

1. If there are two same currencies, then it is permissible to exchange them for each other provided that both the counter values are equal. An excess on either counter values is Ribaa and interest, hence prohibited. For example: $50 in exchange of $50.

2. If there are two different currencies on cash, then they may be exchanged with excess on one counter value or both counter values with mutual agreement. For example: $50 in exchange of R500.00.

3. If there are two different currencies being exchanged on cash, then it is permissible to exchange them on any rate on condition that both the transacting parties are in agreement of the rate. For example: $50 in exchange of R500.00 at a rate of $10 to the Rand.

4. If there are two different currencies being exchanged on credit, then it is permissible to exchange them provided that the rate of exchange is on the market rate and not on any agreed upon rate. For example: $50 in exchange of R400.00 payable after three months on the current market rate of $8 to the Rand. (Contemporary Fatawa, Pg.141, Idara)

2. According to Shariah, it is incumbent that the debtor return the actual amount/value owed to the creditor.[1]

Therefore, if person A loans person B $50 on condition that he repay’s person A R500.00, that will not be permissible since the exchange rate continuously fluctuates and person A is not guaranteed of being paid the full market value of $50.

As an alternative, we advise that person B (debtor) pays the market value of the loaned amount ($50) to person A (creditor) on the day of paying out the debt.

And Allah Ta’āla Knows Best

Ismail Desai,
Student Darul Iftaa
Durban, South Africa

Checked and Approved by,
Mufti Ebrahim Desai.