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The divergence of views1 on the permissibility or otherwise of exchange contracts in currencies can be traced primarily to the issue of riba prohibition. The need to eliminate riba in all forms of exchange contracts is of utmost importance. Riba in its Sharia context is generally defined2 as an unlawful gain derived from the quantitative inequality of the countervalues in any transaction purporting to effect the exchange of two or more species anwa , which belong to the same genus jins and are governed by the same efficient cause illa.


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Riba is generally classified into riba al -fadl excess and riba al-nasia deferment which denote an unlawful advantage by way of excess or deferment respectively. Prohibition of the former is achieved by a stipulation that the rate of exchange between the objects is unity and no gain is permissible to either party.

The latter kind of riba is prohibited by disallowing deferred settlement and ensuring that the transaction is settled on the spot by both the parties. Another form of riba is called riba al-jahiliyya or pre-Islamic riba which surfaces when the lender asks the borrower on the maturity date if the latter would settle the debt or increase the same.

Increase is accompanied by charging interest on the amount initially borrowed. The prohibition of riba in the exchange of currencies belonging to different countries requires a process of analogy qiyas. And in any such exercise involving analogy qiyas , efficient cause illa plays an extremely important role. It is a common efficient cause illa , which connects the object of the analogy with its subject, in the exercise of analogical re asoning. The appropriate efficient cause illa in case of exchange contracts has been variously defined by the major schools of Fiqh.

This difference is reflected in the analogous reasoning for paper currencies belonging to different countries. A question of considerable significance in the process of analogous reasoning relates to the comparison between paper currencies with gold and silver. In the early days of Islam, gold and silver performed all the functions of money thaman. Currencies were made of gold and silver with a known intrinsic value quantum of gold or silver contained in them.

Such currencies are described as thaman haqiqi, or naqdain in Fiqh literature.

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These were universally acceptable as principal means of exchange, accounting for a large chunk of transactions. Many other commodities, such as, various inferior metals also served as means of exchange, but with limited acceptability. These are described as fals in Fiqh literature. These are also known as thaman istalahi because of the fact that their acceptability stems not from their intrinsic worth, but due to the status accorded by the society during a particular period of time. The above two forms of currencies have been treated very differently by early Islamic jurists from the stand point of permissibility of contracts involving them.

The issue that needs to be resolved is whether the present age paper currencies fall under the former category or the latter.

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One view is that these should be treated at par with thaman haqiqi or gold and silver, since these serve as the principal means of exchange and unit of account like the latter. Hence, by analogous reasoning, all the Sharia-related norms and injunctions applicable to thaman haqiqi should also be applicable to paper currency. Exchange of thaman haqiqi is known as bai-sarf, and hence, the transactions in paper currencies should be governed by the Sharia rules relevant for bai-sarf.

The contrary view asserts that paper currencies should be treated in a manner similar to fals or thaman i stalahi because of the fact that their face value is different from their intrinsic worth. Their acceptability stems from their legal status within the domestic country or global economic importance as in case of US dollars, for instance.

A Synthesis of Alternative Views 2. Analogical Reasoning Qiyas for Riba Prohibition. It also applies, by analogy qiyas to all species which are governed by the same efficient cause illa or which belong to any one of the genera of the six objects cited in the tradition.

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However, there is no genera l agreement among the various schools of Fiqh and even scholars belonging to the same school on the definition and identification of efficient cause illa of riba. For the Hanafis, efficient cause illa of riba has two dimensions: the exchanged articles belong to the same genus jins ; these possess weight wazan or measurability kiliyya.

If in a given exchange, both the elements of efficient cause illa are present, that is, the exchanged countervalues belong to the same genus jins and are all weighable or all measurable, then no gain is permissible the exchange rate must be equal to unity and the exchange must be on a spot basis. In case of gold and silver, the two elements of efficient cause illa are: unity of genus jins and weighability.

This is also the Hanbali view according to one version3.

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A different version is similar to the Shafii and Maliki view, as discussed below. Thus, when gold is exchanged for gold, or silver is exchanged for silver, only spot transactions without any gain ar e permissible. It is also possible that in a given exchange, one of the two elements of efficient cause illa is present and the other is absent.

For example, if the exchanged articles are all weighable or measurable but belong to different genus jins or, if the exchanged articles belong to same genus jins but neither is weighable nor measurable, then exchange with gain at a rate different from unity is permissible, but the exchange must be on a spot basis. Thus, when gold is exchanged for silver, the rate can be different from unity but no deferred settlement is permissible. If none of the two elements of efficient cause illa of riba are present in a given exchange, then none of the injunctions for riba prohibition apply.

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Exchange can take place with or without gain and both on a spot or deferred basis. Considering the case of exchange involving paper currencies belonging to different countries, riba prohibition would require a search for efficient cause illa. Currencies belonging to different countries are clearly distinct entities; these are legal tender within specific geographical boundaries with different intrinsic worth or purchasing power. Hence, a large majority of scholars perhaps rightly assert that there is no unity of genus jins. Add itionally, these are neither weighable nor measurable.

This leads to a direct conclusion that none of the two elements of efficient cause illa of riba exist in such exchange. Hence, the exchange can take place free from any injunction regarding the rate of exchange and the manner of settlement. The logic underlying this position is not difficult to comprehend. The intrinsic worth of paper currencies belonging to different countries differ as these have different purchasing power.

Additionally, the intrinsic value or worth of paper currencies cannot be identified or assessed unlike gold and silver which can be weighed.

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Hence, neither the presence of riba al -fadl by excess , nor riba alnasia by deferment can be established. The Shafii school of Fiqh considers the efficient cause illa in case of gold and silver to be their property of being currency thamaniyya or the medium of exchange, unit of account and store of value. This is also the Maliki view.

According to one version of this view, even if pa per or leather is made the medium of exchange and is given the status of currency, then all the rules pertaining to naqdain, or gold and silver apply to them. Thus, according to this version, exchange involving currencies of different countries at a rate d ifferent from unity is permissible, but must be settled on a spot basis. Another version of the above two schools of thought is that the above cited efficient cause illa of being currency thamaniyya is specific to gold and silver, and cannot be generalized.

That is, any other object, if used as a medium of exchange, cannot be included in their category.

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Hence, according to this version, the Sharia injunctions for riba prohibition are not applicable to paper currencies. Currencies belonging to different countries can be exchanged with or without gain and both on a spot or deferred basis. Proponents of the earlier version cite the case of exchange of paper currencies belonging to the same country in defense of their version. The consensus opinion of jurists in this case is that such exchange must be without any gain or at a rate equal to unity and must be settled on a spot basis.

What is the rationale underlying the above decision? If one considers the Hanafi and the first version of Hanbali position then, in this case, only one dimension of the efficient cause illa is present, that is, they belong to the same genus jins. But paper currencies are neither weighable nor measurable. Hence, Hanafi law would apparently permit exchange of different quantities of the same currency on a spot basis. Similarly if the efficient cause of being currency thamaniyya is specific only to gold and silver, then Shafii and Maliki law would also permit the same.

Needless to say, this amounts to permitting riba-based borrowing and lending. This shows that, it is the first version of the Shafii and Maliki thought which underlies the consensus decision of prohibition of gain and deferred settlement in case of exchange of currencies belonging to the same country. According to the proponents, extending this logic to exchange of currencies of different countries would imply that exchange with gain or at a rate different from unity is permissible since there no unity of jins , but settlement must be on a spot basis.

Bai-sarf is defined in Fiqh literature as an exchange involving thaman haqiqi, defined as gold and silver, which served as the principal medium of exchange for almost all major transactions. Proponents of the view that any exchange of currencies of different countries is same as bai -sarf argue that in the present age paper currencies have effectively and completely replaced gold and silver as the medium of exchange. Hence, by analogy, exchange involving such curr encies should be governed by the same Sharia rules and injunctions as bai -sarf.

It is also argued that if deferred settlement by either parties to the contract is permitted, this would open the possibilities of riba-al nasia. Opponents of categorization of currency exchange with bai-sarf however point out that the exchange of all forms of currency thaman cannot be termed as bai-sarf.