What is the ruling on trading in paper currency?

The Shaykh : Please, go ahead.

The questioner : Regarding trading in currency, if I buy a quantity of currency at a certain price, and then it rises, for example, slightly, and I sell it, is that permissible?

The Shaykh : What is permissible in trading.

The questioner : Things if you allow.

The Shaykh : Trading in paper currency is not permissible for two reasons, and we have often addressed this explanation. The first reason is that paper currency has no intrinsic value; it has a nominal value in every country that issues this paper currency. However, this nominal value, due to various circumstances, most importantly economic conditions, is subject to fluctuation. Therefore, traders and speculators who watch for opportunities for some currencies to rise and others to fall, and so on, monitor these varying fluctuations in rise and fall. Sometimes they make huge profits, and sometimes they suffer great losses. This is the nature of gambling. I know that in the past, every currency had a gold reserve in the state bank, such that the holder of this currency, if he had, for example, one thousand riyals or dinars, would go to the bank of that country and receive, in exchange for these papers that have no intrinsic value, something of intrinsic value, such as gold or silver.
But now, such a reserve no longer practically exists, such that if you go to the bank in any country with that country's currency and say, "Give me gold in exchange for this," they will not respond to you. So, in this regard, when paper currency had a gold reserve stored in the bank, it was not permissible at that time to sell a dinar for a dinar except, for example, like for like and hand to hand. Why? Because this is like a bond that you wrote on yourself and signed. It is not permissible to sell this bond for more or less, for example, one thousand dinars, like for like, hand to hand. This was the case previously when this paper currency, as we said, had a gold reserve. So at that time, trading in currency was also not permissible due to the lack of similarity from one aspect.
And sometimes due to the lack of the second condition, which is cash hand to hand. Now that the gold value is gone, what remains? Paper with no value. And so, due to economic or war circumstances or similar, the dinar that had the strongest financial power fell at once, then sometimes rises and sometimes falls. This is gambling, where a person does not know whether he will profit or lose. This happened to many people; between one evening and the next morning, some became owners of millions, while others began to bite their hands in regret for what they did because they suffered huge losses. Therefore, for this reason automatically, and for that reason in the past, trading in paper currency is not permissible. This means that exchanging these currencies is not permissible except within the limits of dire necessity that a Muslim must have.
I mean, for example, you are a man about to go for 'Umrah or Hajj to the House of Allah the Exalted, and there you must have the currency of the country, that is, the Saudi currency. You are therefore obliged to exchange it either here or there to facilitate the purchase of your necessary or desirable items. This is necessary because dire necessities permit the prohibited. However, this rule must not be understood in an absolute sense. "Dire necessities permit the prohibited" must be restricted by the condition established by the scholars, which is their statement that "a dire necessity is estimated by its amount." So, for example, if you need to exchange five hundred dinars to benefit from this exchange, whether you go for Hajj or 'Umrah, it is not permissible for you to buy, say, one thousand dinars. No. Then there, you buy dinars with the five hundred you bought here, because the dinar is cheaper in the foreign country. All of this is a matter of gambling, so it is not permissible. Therefore, exchange is only permissible within the limits of dire necessity. As for exchange for profit and trade, this is not permissible.