Does the Difference in Currency Rates in Forex Trading Count as Riba?
A woman asked about Forex currency trading, saying that she wished to engage in this business but had a concern: when she purchases one currency in exchange for another,
there is often a significant price difference between them,
and she wanted to know whether that difference constitutes Riba (interest).
In response, it was clarified that when the type (genus) of the currency changes, the transaction does not become Riba.
Riba arises only when there is an unequal exchange within currencies of the exact same type.
When Does Currency Exchange Clearly Become Riba?
If Rupees are exchanged for Rupees with any addition or deduction, that is Riba.
A practical example is the trade in new banknotes
that appears in the market during Ramadan or Eid.
In this business, sellers charge a premium on every thousand Rupees.
This is an unequal exchange within the same currency, and it is straightforward Riba.
Is Buying and Selling Different Currencies Such as the Dollar, Riyal, or Pound Permissible?
If the currency itself changes, for example, you are purchasing US Dollars, Saudi Riyals, or British Pounds using Pakistani Rupees.
Since the nature and type of the currency have changed, it is permissible in Shariah to buy and sell them. There is no harm in this.
Is Trading Digital Currency Permissible According to Shariah?
Digital currency is not prohibited under Shariah in and of itself. When the type of currency differs, buying and selling it is permissible in Islamic law.
However, the real issue with digital currency is that there must be a solid guarantee behind it. If no such guarantee exists, it becomes a major form of deception.
What Is the Ruling on Gharar and Financial Risk in Digital Currencies With No Backing?
If there is no guarantee behind a digital currency, it falls under deception and Gharar (excessive uncertainty and risk).
A person should not enter into transactions involving Gharar, as it can lead to severe financial loss.
The reality of many online digital currencies is that any operator can shut down their website or platform at any time, and the entire venture disappears.
An operator can only be prevented from doing this when there is a formal legal obligation or an established guarantee behind the platform.
What Does the Example of a Paper Banknote Tell Us About Guaranteed Currency?
Consider the standard Pakistani paper banknote.
It carries the printed declaration: The State Bank of Pakistan promises to pay the bearer
on demand the sum of one hundred Rupees.
This note is essentially a promissory receipt that functions as currency,
backed by the formal sovereign guarantee of the State Bank of Pakistan.
What Is the Final Shariah Ruling on Digital Currency and Forex Trading?
- Permissible: If a digital currency is backed by a formal, recognised guarantee from a government or sovereign state, it is permissible to buy and sell it.
- Not Permissible / Must Be Avoided: If no such guarantee exists, it must be strictly avoided, as it can result in massive financial loss at any moment.
Knowingly drawing others into such deception, despite being aware of these risks, is not permissible in Shariah.
