Trading in currencies

Assalam o Alaikum Respected Mufti Sahib, We are students residing at Torino, Italy. I have a little question regarding a trade between euro and PKR.  Let us suppose that person X wants to send euros to Pakistan and person Y needs euros from Pakistan. In this case usually what we (students) do is that person Y’s father (or any other relative) transfers the equal amount of PKR to person X’s relative’s provided bank account. And when this transaction is confirmed, person X hands over the equal amount of euros to person Y. In this case both parties save the transaction charges. Usually the exchange rate is set according to the rate given at www.forex.pk or www.xe.com. Our question is if this trade is against Islamic rulings or is it OK? If there is some problem in it, then please guide us what can be an alternate solution for this kind of problem according to Islamic rulings.


 Answer:

It is permissible to trade in currencies of different countries regardless of whether both the payments are of same face value or different face value, for example to exchange one euro for two GBP. This is due to the fact that both the currencies are considered to be of a different type or class. Hence excess on either one side is permissible and will not be considered as Riba (interest). However one must adhere to the following conditions:

  • At least one party must take possession of the currency at the time of transaction, for departing with debt on both sides is not permissible according to the following Hadith:


“……. If the species differ, sell as you wish provided that the payment is made on the spot”.

(Tirmidhi no: 1161, Abu Dawud no: 2907)

  • If both payments are of different face value then the transaction must be carried out according to the market rate.

Mufti Taqi Uthmani states:

“…if the currencies are of different countries, they can be sold at whatever rate agreed upon between the parties which can be different from the market rate. However, if the payment is differed on either side, it must be in accordance to the market rate.” (Contemporary Fatawaa p141)

Only Allah Knows Best

Written by Mufti Abdullah al-Ma’mun

Checked and approved by Mufti Mohammed Tosir Miah

Darul Ifta Birmingham.