Trading Currencies - Appendix B

Transcription

1. Shari ’ah Standard No. (1): Trading in Currencies Appendix (B) The Shari’ah Basis for the Standard Available Evidence Pertaining to the Exchange of Currencies In the Hadiths of the Prophet, there are many Hadiths which govern the rules regarding the exchange of currencies. The best known Hadith is the one reported on the authority of Ubadah Ibn Al-Samit (may Allah be pleased with him) that the Prophet (peace be upon him) said: “Gold for gold, silver for silver – until he said - equal for equal, like for like, hand to hand, if the kinds of assets differ, you may sell them as you wish provided it is hand to hand hand..”(2) The other Hadith, reported on the authority of Abu Sa’id Al-Khudri, is that the Prophet (peace be upon him) said: “Do not sell gold for gold except equal for equal and do not sell what is deferred for a spot exchange.”(3) These two Hadiths show clearly enough that gold is of one kind and the silver is of another. A few decisions have been issued by Islamic Fiqh organizations(4) in accordance with the Shari’ah ruling that has been already accepted amongst the jurists, namely that dinars are of a different kind from dirhams. Contemporary Islamic Fiqh scholars have made an analogy between paper and coin money and gold and silver money referred to in the prophetic Hadith. The currency of each (2) Related by Muslim in his “Sahih Muslim”. Muslim” (3) Related by Al-Bukhari in his “Sahih Al-Bukhari” Al-Bukhari”. (4) Among other examples is the one issued by the General council of Fatwa in Kuwait as follows: It is permissible to sell currencies that are different from each other because every currency is considered as a kind of money on its own, like that of gold and silver, and therefore it is permissible to sell a particular currency such as dollar, for another currency such as Indian Rupee even for inequality as it is permissible to sell gold for silver for a different weight, provided the bilateral taking possession of the two counter values ( two currencies) must take place in the session of the contract. However, if a certain amount of a particular currency is sold for the same currency such as Indian rupee for Indian rupee, then the inequality is impermissible ((“Majmu’ “Majmu’at Al-Fatawa Al-Shar’iyyah”,, Adminsitration of Fatwa of Kuwait 3/160 no. 788). Al-Shar’iyyah” 62
2. Shari ’ah Standard No. (1): Trading in Currencies country is considered as being of a kind that is different from that of other countries as they are ‘constructive money’ according to the decision of the International Islamic Fiqh Academy.(5) Therefore, these currencies differ in kind according to the authority that considers them as money. On this basis, it has been a condition, in the exchange of currencies that are of the same kind, that equality in amount as well as taking possession of the two countervalues before the two contracting parties depart the place of the closing of the contract. However, if the kind of the currencies to be exchanged is different, then it is permissible for the amounts to be different, but the condition of taking possession of the countervalues before the two contracting parties leave the place of signature of the contract shall prevail. Shari’ah Ruling on Trading in Currencies The original ruling on trading in currencies is that it is permissible, as it falls under the general Islamic provisions regarding the permissibility of selling gold, silver and money because this is one means of earning a profit. This ruling is applicable as long as there is no reason for considering the dealing as prohibited or objectionable. The basis of this ruling is the Hadith that are available with regard to exchange of currencies and the general ruling that is derived from these Hadith as decided by the jurists in the chapter on currency exchange. Whenever one of the Shari’ah precepts is not met, then the dealing is not permissible. Stipulation of Equality and Taking Possession While equality of the countervalues and concurrent taking of possession are required in the exchange of two similar kinds of currencies, only bilateral taking of possession is required in the exchange of two dissimilar kinds, based on the basis stated in (1) above. Constructive Possession Constructive possession –as in the forms mentioned in the standard– is on an equal footing with actual possession, because the Shari’ah never prescribed a particular method for taking possession. Therefore, reference must be made to the prevailing custom in the business community which (5) The International Islamic Fiqh Academy Resolution No. 21 (9/3). 63
3. Shari ’ah Standard No. (1): Trading in Currencies results in the ability to dispose of the currency for the intended purpose and transfer of the risk of the currency to the transferee, as in the forms mentioned in the standard. As for the various forms of constructive possession, there is a decision issued by the International Islamic Fiqh Academy,(6) and the various Fatwa Committees have added to these forms some others, such as the credit card settlement coupon.(7) The Ninth Seminar of Al Baraka(8) has confirmed the prohibition of giving a guarantee by one of the parties in Mudarabah or Musharakah transactions to the other party, to indemnify him against currency risks. Agency in Exchange of Currencies and Issue of Taking Possession Agency in exchange of currencies is permissible because agency is permissible with regard to an activity that the principal could undertake personally. As one could undertake the exchange himself, then it is also permissible for him to authorise its undertaking by others on his behalf. However, since taking possession of the countervalues immediately after concluding the contract has been a juristic condition, the juristic requirement in the case of agency would be the taking possession by the parties to the contract of exchange, whether through principal or agent. When the agency is for the purpose of taking possession only, the juristic rule relates to the leaving of the place of execution of the contract by both principals before possession is taken, and not to the agent’s doing so. Use of Modern Means of Communication for Trading in Currencies The International Islamic Fiqh Academy(9) issued a decision on the subject of those means of communication. This is a reinforcement of what has already been approved by the jurists on the permissibility of concluding (6) International Islamic Fiqh Academy Resolution No. 53 (3/6); “Majallat Al-Majma’” Al-Majma’”,, vol. 6 [2: 785]. (7) Fatwa No. (12/6) of Al Baraka Seminar No. (12), stating: A payment slip signed by the cardholder is tantamount to receipt, by means of a cheque. In this respect it is stronger than a cheque, as stated by experts, because it is binding on the trader and it discharges the cardholder of the debt immediately, and he may not protest the collection of the amount thereof. (8) Al Baraka Seminar No. 9 (9/5). (9) The International Islamic Fiqh Academy Resolution No. 52 (3/6). 64
4. Shari ’ah Standard No. (1): Trading in Currencies a contract via writing and communications that can be understood. This would cover all contemporary means such as telex, fax, internet, etc. Bilateral Promise in Exchange of Currencies The prohibition of a binding bilateral promise in an exchange of currencies is supported by the majority of Shari’ah jurists, because binding bilateral promises from two parties are equivalent to a contract, and also for the reason that the bilateral promise is not immediately followed by taking possession of the countervalues, since it is not the wish of the parties to take possession at that time. Financial Institutions have a customary practice of treating promises as binding, even when formally they are not. A promise from one party only (as opposed to a bilateral promise) is permissible in currency exchange, even if it is binding. Exchange of Currencies that Are Owed by the Parties The basis of the permissibility of an exchange of amounts denominated in currencies that are debts established as an obligation of the debtor, on the condition that the two obligations are thereby settled, is that this would entail the settlement of the debt by discharging it. This does not involve any prohibited transaction pertaining to debts either with regard to sale or purchase. As for some of the forms mentioned in the standard, there are texts to support them, inter alia, the Hadith reported on the authority of Ibn Umar (may Allah be pleased with him) who said: “I have met the Prophet (peace be upon him) at the house of Hafsah (may Allah be pleased with her). And I said to him: ‘O Prophet of Allah, I would like to ask you; ‘I sell a camel in Al-Baqi’ for a price quoted in dinar but I take dirham, and I sell for a price quoted in dirham but I take dinars, I take this from this and I give this from this’. The Prophet (peace be upon him) replied: ‘There is no objection to your taking the other currency based on the price of the day, provided you do not leave each other with something remaining owed as a debt between you’.”(10) Some of the forms in the standard are a kind of set-off and this is permissible. (10) Related by Abu Dawud, Al-Tirmidhi, Al-Nassa`i, Ibn Majah and Al-Hakim, who deemed it a sound Hadith, as confirmed by Al-Dhahabi. It was also narrated without a chain of narrators, quoting only Ibn Umar (“Al-Talkhis (“Al-Talkhis Al Habir” [3: 26]). 65
5. Shari ’ah Standard No. (1): Trading in Currencies Combination of Currency Exchange and Transfer of Money The basis of the permissibility of the combination of currency exchange and transfer of money is the achievement of constructive possession by virtue of a bank draft for the amount that is given in one currency in return for an amount paid in another currency for the purpose of its transfer. In this regard, there is a decision by the International Islamic Academy of Fiqh that reads: “If a transfer of money is to be made in a currency different from the currency of the amount paid by the applicant, then the transaction is based on currency exchange and transfer of money. The currency exchange takes place before the transfer, that is, the customer pays the amount of money to the bank and the bank, after agreeing on the currency exchange rate that is printed on the receipt delivered to the customer, issues a bank draft on the basis of transfer of debt in the sense that has been mentioned.”(11) Forms of Trading in Currencies The following form is not permissible: providing a type of financial facility to a customer who wishes to engage in currency trading which enables him to deal in amounts that he does not own and to sell amounts that he does not own. An alternative and permissible form is that the Institution lends the money to the customer so that the latter would then deal in amounts that he owns. However, this would not be permissible if the Institution made it a condition of the loan that the customer must carry out the currency trading with the Institution, as this would involve a combination of both loan and contract of exchange. This is not permissible because it results in a benefit to the lender. Where no such condition is imposed, there is no prohibition. (11) International Islamic Fiqh Academy Resolution No. 48 (1/9) 66