The Ruling on the Zakah of Paper Currency and the Riba in It
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The questioner : Your Eminence the Shaykh! What is Your Eminence’s opinion regarding those who hold that paper currency is not subject to zakah, and does riba (usury or interest) apply to it?
The Shaykh : It is well known that paper currency did not exist as currency until later eras. For this reason, the scholars differed on it, with approximately six opinions. However, in our view, the most correct opinion is that its ruling is the same as that of the currency it replaced. Riba al-nasi'ah (usury of deferment) applies to it, but riba al-fadl (usury of excess in a like-for-like exchange) does not. This means that if you exchanged Saudi riyals for US dollars without immediate exchange in the meeting of the contract, it would be forbidden. However, if you exchanged them with a difference in value, there is no harm. For example, if we assume that one US dollar equals four riyals, it is permissible to buy it from another person for five riyals because you need it. This is the opinion I hold, and it is a middle position between those who prohibit both riba al-nasi'ah and riba al-fadl in it, and those who permit both. Among the opinions on this matter was also the view that it is not permissible to deal in it at all.
Because he says that it represents debts owed to the government that issued it, and selling a debt to someone other than the one it is owed to is forbidden. He also says that a person is not permitted to deal in it except in cases of dire necessity. So, if one needs to buy a loaf of bread with a note, there is no harm.
If he wants to buy two loaves of bread while he is in no need of the second one, it is not permissible for him to buy it. He can buy a garment for ten riyals to cover his 'awrah (the part of the body that must be covered), but it is not permissible for him to buy a garment for fifteen riyals just because it is more beautiful. This is an opinion that is undoubtedly one that cannot be acted upon, but I have mentioned it to you so that you may know the different perspectives. The opinion mentioned by the questioner states that this currency is trade goods, like clothing, with no riba, neither riba al-nasi'ah nor riba al-fadl, and no zakah is due on it unless it is intended for trade, like other trade goods. Although this appears to be the apparent statement of the Hanbali jurists (may Allah have mercy on them), who said that there is absolutely no riba in small coins, it is a weak opinion. The closest opinion to me is that it is in the position of the currency it replaced, so zakah is obligatory on it and riba applies to it, but only riba al-nasi'ah, not riba al-fadl. Based on this, if someone bought a ten-riyal note for nine metal riyals, is it permissible or not? Based on what we have chosen, it is permissible, especially since the types are different. The Prophet (peace and blessings be upon him) said: "If these types differ, sell as you wish, as much as you wish, if it is called for."
The Shaykh : It is well known that paper currency did not exist as currency until later eras. For this reason, the scholars differed on it, with approximately six opinions. However, in our view, the most correct opinion is that its ruling is the same as that of the currency it replaced. Riba al-nasi'ah (usury of deferment) applies to it, but riba al-fadl (usury of excess in a like-for-like exchange) does not. This means that if you exchanged Saudi riyals for US dollars without immediate exchange in the meeting of the contract, it would be forbidden. However, if you exchanged them with a difference in value, there is no harm. For example, if we assume that one US dollar equals four riyals, it is permissible to buy it from another person for five riyals because you need it. This is the opinion I hold, and it is a middle position between those who prohibit both riba al-nasi'ah and riba al-fadl in it, and those who permit both. Among the opinions on this matter was also the view that it is not permissible to deal in it at all.
Because he says that it represents debts owed to the government that issued it, and selling a debt to someone other than the one it is owed to is forbidden. He also says that a person is not permitted to deal in it except in cases of dire necessity. So, if one needs to buy a loaf of bread with a note, there is no harm.
If he wants to buy two loaves of bread while he is in no need of the second one, it is not permissible for him to buy it. He can buy a garment for ten riyals to cover his 'awrah (the part of the body that must be covered), but it is not permissible for him to buy a garment for fifteen riyals just because it is more beautiful. This is an opinion that is undoubtedly one that cannot be acted upon, but I have mentioned it to you so that you may know the different perspectives. The opinion mentioned by the questioner states that this currency is trade goods, like clothing, with no riba, neither riba al-nasi'ah nor riba al-fadl, and no zakah is due on it unless it is intended for trade, like other trade goods. Although this appears to be the apparent statement of the Hanbali jurists (may Allah have mercy on them), who said that there is absolutely no riba in small coins, it is a weak opinion. The closest opinion to me is that it is in the position of the currency it replaced, so zakah is obligatory on it and riba applies to it, but only riba al-nasi'ah, not riba al-fadl. Based on this, if someone bought a ten-riyal note for nine metal riyals, is it permissible or not? Based on what we have chosen, it is permissible, especially since the types are different. The Prophet (peace and blessings be upon him) said: "If these types differ, sell as you wish, as much as you wish, if it is called for."
Source
لقاء بمسجد الطلاب بالمدينة الجامعية - 1 — archive.org (1:08:44)
The Arabic text is a machine transcription of the audio recording.