Borrowing in dollars & paying off debt in another currency

Answered by Sheikh `Abd al-Hakîm Balmahdî, professor at al-Imâm Islamic University, Riyadh
 

This question was confronted at the time of the Prophet (peace be upon him) and His Companions, since they had two currency standards at the time: the golddinar and the silver dirham. Prices could be quoted or set in either currency. For instance, the price of something could be a quarter dinar, a tenth dirham, fifty dirhams, 100 dinars, etc…

Ibn `Umar relates that he approached the Prophet (peace be upon him) and said: “I sell camels in the Baqī district. Sometimes I sell them for a price fixed in gold dinars but receive their price in silver dirhams, and at times I sell them for silver dirhams but receive their price in gold dinars.”

In a variant narration, it reads that Ibn `Umar said: “I sell for gold dinars but receive the price in silver, and I sell for silver but receive the price in gold dinars.”

The Prophet (peace be upon him) replied: “There is no problem, as long as when you take the price, it is according to that day’s prevailing market value and no account remains outstanding.” [Sunan al-Tirmidhī, Sunan Abī Dāwūd, Sunan al-Nasā’ī, and Sunan Ibn Mājah]

Al-Hākim declares this narration to be authentic according to the conditions set forth by Imam Muslim.

This hadith indicates the permissibility of paying off a debt in other than the currency which was originally borrowed. The condition for doing so is that the determination of the exchange value is based on the day that the debt is paid, not the day that the debt was incurred.

For example, if someone borrows 1000 dollars and pays the debt off a year later in South African rand, they have to consider the exchange rate on the day the debt is paid off. If the exchange rate on that day is seven rand to the dollar, the debtor must pay the lender 7000 rand. It does not matter what the exchange rate was when the debt was incurred. If the exchange rate was ten rand to the dollar back then or five rand to the dollar, it makes no difference. All that matters is the exchange rate at the time that the debt is paid.

Bakr b. `Abd Allah al-Muzani and Masrūq told Ibn `Umar (the eminent Companion) that they borrowed gold dinars from someone but now that they have to pay it, they only have silver dirhams with them. Ibn `Umar said: “Pay him in dirhams according to the market exchange rate.”

Therefore, it is permissible for you to pay the debt in South African rand instead of dollars as long as you pay what you owe according to the current rand/dollar exchange rate.

This ruling is in accordance with the majority of legal scholars throughout history and accords with the definitive rulings of the Hanafī, Mālikī, Shāfi`ī and Hanbalī schools of legal thought. Most contemporary Muslim jurists concur with this ruling.

And Allah knows best.

Source: Islam Today