The Shar`y ruling on using banknotes

A: Earlier, the Council of Senior Scholars at the Kingdom of Saudi Arabia studied this issue, and issued decision No. 10. Here is the summary:Before giving the ruling, some points must be taken into consideration; A- Naqd (monetary unit) means every object which is used customarily between people as a monetary medium of exchange. This is clear by what the Shaykh of Islam Ibn Taymiyyah said: "As for dirhams and dinars, i.e. Naqd, they are not known to have specific definitions in Shari`ah (Islamic law) as the definition is left to `Urf (custom). Moreover, they are not intended for themselves, thus the aim is to be a medium of exchange. (Part No. 8; Page No. 215) [any object can be considered a monetary unit as long as people use it customarily between them]. That is why they are regarded as Athman (being used us a price)..." Finally, ibn Taymyah adds that it is known that the means which is free from a purpose (i.e. pure) can suffice the purpose." (Majmu` Al-Fatawa, Vol. 29, P. 251)Imam Malik also mentions something similar in his book "Al-Mudawanah", in the chapter on Sarf in which he writes: "If people agree to adopt leather as a monetary unit by making a (minting) die and a specie from it, I would dislike it to be exchanged for gold or notes with delay of payment!"B- Banknotes have become widely circulated, and acceptable; moreover, they have the characteristics of priced objects in that they can be exchanged for goods. In addition, it has become evident from the discussion with His Eminence, the Governor (of the bank) that their feature of being promissory notes is not particularly meant; the present situation testifies to this fact. In addition, it is not necessary that the backing of currencies covers all banknotes, since some authorities observe the custom of leaving a part of their paper currencies without backing. Besides, the backing need not be of gold; it may be of other reserves, like strong banknotes. Silver also is no longer considered a partial or complete backing for any currency in the world.Moreover, it has become clear that the strength or weakness of banknotes is determined according to the status of the economy of the government. Local raw materials such as petroleum, cotton, (Part No. 8; Page No. 216) and wool have not been yet adopted by any issuing authority as backing reserves for banknotes. C- The view that is most proven, and closer to the objectives of Shari`ah on the reason behind gold and silver being subject to Riba (usury/interest) is that they are Athman, a view which is also held by Malik, Abu Hanifah, and Ahmad in one narration for them. Abu Bakr said: "A group of scholars narrated this view from Ahmad, and it is also the view of some leading scholars like Shaykh Al-Islam Ibn Taymiyyah, his student ibn Ibn Al-Qayyim, and others."D- Thamaniyah (being used as a price) is clearly found in banknotes.Based on the above considerations, the Council of Senior Scholars, in its majority, has decided that banknotes are considered a monetary unit like gold and silver, and other types of Athman; they are also of various types according to their concerned issuing authorities. In other words, the Saudi banknotes, [for instance,] is a type by itself, and so is the case with the U.S.A banknotes, etc. Consequently, the following Shar`y rulings are to be applied to them (banknotes): First: Banknotes are subject to Riba with its both types, as is the case with gold and silver and other monetary units of account. This entails the following: 1- It is absolutely impermissible to sell some banknotes for others of the same type, or for other monetary units of account, gold, silver, etc., with delay of payment [Nasi'ah]. (Part No. 8; Page No. 217) For example, it is impermissible to exchange a U.S. Dollar for five Saudi Riyals or more or less "with delay of payment". 2- It is impermissible to sell some banknotes for others of the same type in excess, whether it is done with delay of payment or on the spot [Riba Al-Fadl (usury of excess, selling an item for another of the same type, on the spot, but in excess)]. For instance, it is impermissible to exchange ten Saudi Riyals (banknotes) for eleven Saudi Riyals (banknotes) in this way. 3- It is generally lawful to sell some banknotes for others of a different type if this is done on the spot. For example, it is permissible to sell one Syrian or Lebanese Lira for one Saudi Riyal, whether in banknotes or silver; less, or more (if this is done on the spot). Likewise, it is lawful to exchange a U.S. Dollar for three Saudi Riyals (banknotes) or more or less, if this is done immediately. Similarly, it is permissible in Shari`ah to sell one silver Saudi Riyal for three Saudi banknotes, more or less, if this is done immediately. This is considered an exchange of one type for another type; sharing the name here has no effect, since they are different in reality. Second: It is Wajib (obligatory) for one who meets the conditions of Zakah (obligatory charity) to pay it for banknotes they possess if they reach Nisab Nisab (the minimum amount on which Zakah is due) of gold or silver, or if they are completed with other Athman (priced units of account), or with commercial commodities prepared for trade (Part No. 8; Page No. 218)  Third: It is permissible to use banknotes as capital in Salam sales (sale with advance payment), and in partnerships.May Allah grant us success. May peace and blessings be upon our Prophet Muhammad, his family, and Companions.