A: In principle Islam recognizes Gold and Silver as mediums of exchange and the jurists refer to these as “Thaman-e-Khilqi” or a medium of exchange that was created as such by the creation of Allah SWT. Thereafter, as modern day paper currencies evolved and they were backed by gold, they also assumed the same status due to them being backed by gold. Thereafter, once modern day currencies were no longer backed by gold, and accordingly had no intrinsic utility, but still maintained widespread global acceptance as a medium of exchange, they became referred to by the Jurists as "Thaman-e-Urfi” or mediums of exchange that are held as such due to widespread overwhelming acceptance. Accordingly, they assumed many of the same rules as gold and silver in the rulings associated to the exchange of gold and silver - i.e. they must be traded on a cash basis and that currencies of the same country cannot be exchanged for different values as that would amount to interest. etc.
The evolvement of crypto currencies now appears to be a new evolution in the development of money which has not yet gained the widespread overwhelming acceptance that conventional money has. The whole issue of "mining" of this currency is also not at all clear to me. There seem to be a number of research papers and articles where the exact nature or characterization of these currencies have been questioned. Further, tax authorities and legal regulators are still not yet on the same page as to how these currencies fit into existing regulations. This being the case, it appears too early to determine whether these currencies assume the role of legal tender and a recognised medium of exchange. Further, there appear to be doubts on whether those involved in mining or marketing these currencies are doing so on the basis of a pyramid schemes which have been deemed objectionable in no uncertain terms by the Fuqaha. Even if deemed acceptable, as a currency is a medium of exchange and not a commodity in itself, the Fuqaha have not preferred that such a medium of exchange be used as a means of one’s livelihood as it has not been created for trading with its own kind. In fact, Jurists have mentioned that currency should only be traded with currency to the extent of necessity whilst fulfilling the overriding rules pertaining to trading in currency. See below, general guidelines on trading in currency.
Based on the above, it is my considered opinion that we abstain from pursuing this as a career or trading in this “currency” until further clarification as to the reality of this currency is attained.
Trading in Normal Currencies
Currency trading in itself is not against the principles of Islamic Economics. However, the Sharia has laid down certain guidelines and regulations when trading in currencies. It is necessary to uphold and maintain these regulations when trading in currencies. The most important of these regulations is that currencies of different countries can be traded in exchange of each other provided that the transaction is completed on spot (i.e. both counter-values should be exchanged at the same time), irrespective of whether the contract is concluded at above or below the spot rate. In other words both the counter-values are exchanged at one and the same time.
The exchange of both counter values and the subsequent possession acquired by the buyer and seller thereof, could take place through actual possession or constructive possession which is also acceptable. In order to enlighten you further on this, I quote hereunder from the Sharia Standards, prepared by AAOIFI:
" 2/6/4. Physical possession takes place by means of simultaneous delivery by hand.
2/6/5 Constructive possession of an asset is deemed to have taken place by the seller enabling the other party to take its delivery and dispose of it, even if there is no physical taking of possession. Among other forms of constructive possession that are approved by both Shari'a and business are the following:
(a) To credit a sum of money to the account of the customer in the following situations:
(1) When the institution deposits to the credit of the customer's account a sum of money directly or through bank transfer.
(2) When the customer enters into a spot contract of currency exchange between himself and the institution, in the case of the purchase of a currency against another currency already deposited in the account of the customer.
(3) When the institution debits - by the order of the customer - a sum of money to the latter's account and credits it to another account in a different currency, either in the same institution or another institution, for the benefit of the customer or any other payee. In following such a procedure, the institution shall adhere to the principles of Islamic law regarding currency exchange.
A delay in making the transfer is allowed to the institution, consistent with the practice whereby a payee may obtain actual receipt according to prevailing business practice in currency markets. However, the payee is not entitled to dispose of the currency during the transfer period, unless and until the effect of the bank transfer has taken effect so that the payee is able to make an actual delivery of the currency to a third party.
(b) Receipt of a cheque constitutes constructive possession, provided the balance payable is available in the account of the issuer in the currency of the cheque and the institution has blocked such a balance for payment......"
Similarly, conventional forward exchange contracts and purchasing or selling of currencies on the futures market is also prohibited. These regulations are deduced directly from the Ahaadith of Rasulullah (Sallallahu Alayhi Wa Sallam).
With regards to other commodity transactions and normal sale transactions, these too are governed by the Islamic Laws of contracts and we recommend that you study the same from a reliable source before engaging in such transactions. You may refer to the book, “An Introduction to Islamic Finance” by Mufti Taqi Uthmani, which will Insha Allah guide you.
One has to be careful in as far as Shariah compliance is concerned when trading on most of the web platforms and markets as the conditions of a valid trade are not generally adhered to. Many people do not really intend to buy and take possession of these currencies and commodities on such platforms. Transactions are very often speculative and hedge based which do not always fulfill Shariah requirements.
In addition to this, one should also consider the following extract from a Fatwa related to Forex Trading by Mufti Taqi Usmani (D.B.): " This is in addition to the fact that the currencies are originally a medium of exchange and should only be exchanged for personal use in different countries. To make them a tradable commodity only for earning a profit is also against the basic philosophy of Islamic economics."
Trust that this clarifies the matter for you.
And Allah Ta'ala Knows Best
Shafique Jakhura (Mufti) MD Mangera (Mufti)