Currency Exchange, Its Illah and Implications

Authors

  • Gapur Oziev
  • Mustafa Omar Mohammed IIUM
  • Muhamad Hafizi M. B. Zaidon
  • Mahfuth Kamis A

Abstract

Foreign exchange is among the most important transactions in any economy. It can affect positively or negatively the relative price of domestic and foreign goods, which in turn has an effect on the country’s economic growth, employment rate, inflation and balance of payments, among others. Yet, foreign exchange has remained a contentious issue among Muslim jurists and scholars. There are those who approve spot transactions but regard forward transactions as unlawful. Conversely, some scholars and jurists do not see any problem with the forward transactions if they are used for hedging purposes. In the context of the contemporary business environment, this contention requires pertinent research in need of revisiting the illah (effective cause/reason) for determining whether a given foreign exchange transaction is Shari’ah compliant. The present study has critically reviewed the major literature and fatwas issued in relation to foreign exchange. It has adopted content analysis to categorize these various views on the subject and preponderated the major ones relevant to modern business. The authors have concluded that the only possible illah to be considered for modern paper money is a thummuniyah (means of payment). The study concludes with recommendations and suggestions for future research.

Downloads

Download data is not yet available.

Author Biography

Mustafa Omar Mohammed, IIUM

Associate Professor

Department of Economics, KENMS, IIUM

References

Abd Al-Razaq Al-Dawish. A. Comp. (2003). Fatawa al-Lajnah Al-Daimah Li al-Buhuth al-‘ilmiyyah Wa al-Ifta’ (Standing Committee for Scientific Research and issuing fatwas). Cairo: Uli Nuha Li al-Intaj al-I’lami.

Abu Zaharah, Mohamad. (2003). Usul Al-Fiqh. Cairo: Dar Al-Fikr Al-Arabi

Adam, Mohamed Ibrahim M. (2006). “Some Aspect of Islamic banks dealing with Conventional Banks Including Suggestions as to Modes of Cooperation”. Retrieved from http://www.dradamlawoffice.com/pdf/some_aspects.pdf

Ahmad, A. U. F., & Hassan, M. K. (2006). The time value of money concept in Islamic finance. American Journal of Islamic Social Sciences, 23(1), 66.

Al-Ghazali, Abu Hamid. (n.d.). Al-Mustasfa Min ‘ilm Al-Usul. Beirut: Dar Ihya Al-Turath Al-Arabi.

Al-Razi, Fakhr Al-Din. (1988). Al-Mahsul Fi ‘ilm Usul Al-Fiqh. Bayrūt : Dar al-Kutub al-'Ilmiyah.

Al-Sa’di, Abd Rahman. (2003). Fiqh Wa Fatawa al-Buyu’. Comp. Abu Muhammad A.A. n.a: Dar Ibn Rajab.

Al-Salus. Ali Ahmad. (2006). Fiqh al-Bay’ wal-istisaq wal-tatbiq al-mua’sir. Dar Thaqafah: Maktabah Dar al-Qur’an, Qatar, 2006.

Al-Shawkani, Mohamad Ali. (1994). Irshad Al-Fuhul ila Tahqiq Al-Haq Min ‘ilm Al-Usul. Beirut: Dar Al-Kutub Al-‘lmiyyah.

Ayub, M. (2007). Understanding Islamic Finance. Singapore: John Wiley & Sons Ltd.

Bank of International Settlements (BIS). (2010). Retrieved from http://www.bis.org

Ebrahim. Ahmed Fazel. (2007). Sarf: The Exchange of Currencies. Retrieved from http://www.iefpedia.com/english/wp-content/uploads/2009/12/sarf.pdf

Kahf, Monzer, (1994). Time Value of Money and Discounting in Islamic Perspective: Re-Visited. Review of Islamic Economics, Vol.3, No.2, pp. 31-38.

Khan, M. A. (1988). Commodity exchange and stock exchange in Islamic economy. American Journal of Islamic Social Sciences, 5(1), 91-114.

Meera, A. K. M. (2002). Hedging Foreign Exchange Risk with Forwards, Futures, Options and the Gold Dinar: A Comparison Note. International Islamic University Malaysia. Accessed, 25, 2011.

Obaidullah, M. (2001). Financial Contracting in Currency Markets: An Islamic Evaluation. International Journal of Islamic Financial Services, 3(3).

Toutounchian, I. (2006). Integrating Money in Capital Theory: A Legal Perspective (Islamic Finance). Journal of the International Association for Islamic Economics and the Islamic Foundation, 10(2), 75-113.

Usmani, Muhammad Taqi, revised answers by Ebrahim, Ahmed Fazel (2007). “Sarf: The Exchange of Currencies”. Retrieved from http://www.iefpedia.com/english/wp-content/uploads/2009/12/sarf.pdf

Wasil, N. Farid. (2000). Al-‘Uqud al-Ribawiyyah Wa al-Muamalat al-Masrafiyyah Wa al-Siyasah al-Naqdiyyah (Ribawi contracts, Banking transactions and Monetary policy). n.a.: Maktabah al-Safa.

Downloads

Published

2016-02-15

How to Cite

Oziev, G., Mohammed, M. O., M. B. Zaidon, M. H., & Kamis A, M. (2016). Currency Exchange, Its Illah and Implications. Journal of Islamic Finance, 5(1), 045–052. Retrieved from https://journals.iium.edu.my/iiibf-journal/index.php/jif/article/view/99

Issue

Section

Articles