Short answer
Yes, when it is done on the spot. You may exchange dollars for pounds or rupees at any rate both sides agree, as long as the exchange is completed at the time, not one side now and the other later. Exchanging the same currency must be equal. Forward contracts and leveraged forex trading are not allowed; money transfer services are allowed.
Exchanging one currency for a different one at an agreed rate is permissible when it is settled on the spot; at minimum one side must be received in the session, and Mufti Taqi Usmani adds that a deferred side must then be at the market rate of that day; the safer course, which AAOIFI requires, is both sides at once. Exchanging a currency for itself in unequal amounts is riba. Agreeing today on a rate for an exchange where both sides are delivered later is not permitted.
The four schools agree on this.
Explanation
The Prophet ﷺ said that gold, silver and certain foods must be exchanged like for like, hand to hand, and "if the kinds differ, sell as you wish, so long as it is hand to hand". Most contemporary scholars apply these rules to paper money. Mufti Taqi Usmani treats each country's currency as its own kind, so dollars for euros may be exchanged at any agreed rate, but not on credit.
Everyday cases:
- Travel money and bureaux de change: halal. You hand over cash and receive cash.
- Card payments abroad and bank conversions: halal; the bank settles both sides through its systems.
- Money transfer services (sending money to family overseas): halal. You pay in your currency, and the service delivers the other currency through its agents. Scholars treat the fee as payment for the service and the exchange as completed at the time.
- Hawala: the informal system works on the same principle and is acceptable in itself, but if it breaks the law of your country, you must not use it.
Not allowed:
- Forward or futures contracts that lock in a rate for both sides to settle later.
- Leveraged forex trading with interest-bearing margin and overnight swaps. See Is forex trading halal?
- Lending someone $100 to be repaid as more than $100, or as a different currency at a rate fixed today that gives you extra.
If you lend money in one currency, you should be repaid in the same currency and amount. Repaying in another currency is allowed if you agree on the day of repayment at that day's rate. Gold has extra conditions: see Is investing in gold halal?
The evidence
Quran, Surah Al-Baqara 2:275
ٱلَّذِينَ يَأْكُلُونَ ٱلرِّبَوٰا۟ لَا يَقُومُونَ إِلَّا كَمَا يَقُومُ ٱلَّذِى يَتَخَبَّطُهُ ٱلشَّيْطَٰنُ مِنَ ٱلْمَسِّ ۚ ذَٰلِكَ بِأَنَّهُمْ قَالُوٓا۟ إِنَّمَا ٱلْبَيْعُ مِثْلُ ٱلرِّبَوٰا۟ ۗ وَأَحَلَّ ٱللَّهُ ٱلْبَيْعَ وَحَرَّمَ ٱلرِّبَوٰا۟ ۚ فَمَن جَآءَهُۥ مَوْعِظَةٌۭ مِّن رَّبِّهِۦ فَٱنتَهَىٰ فَلَهُۥ مَا سَلَفَ وَأَمْرُهُۥٓ إِلَى ٱللَّهِ ۖ وَمَنْ عَادَ فَأُو۟لَٰٓئِكَ أَصْحَٰبُ ٱلنَّارِ ۖ هُمْ فِيهَا خَٰلِدُونَ ﴿٢٧٥﴾
Those who consume interest cannot stand [on the Day of Resurrection] except as one stands who is being beaten by Satan into insanity. That is because they say, "Trade is [just] like interest." But Allah has permitted trade and has forbidden interest. So whoever has received an admonition from his Lord and desists may have what is past, and his affair rests with Allah. But whoever returns to [dealing in interest or usury] - those are the companions of the Fire; they will abide eternally therein.
Exchange is trade when it follows the rules of riba.
Sahih Muslim 1587
Sahih... فإذا اختلفت هذه الأصناف فبيعوا كيف شئتم إذا كان يدا بيد ...
"If these kinds differ, sell as you wish, so long as it is hand to hand."
Different currencies may be exchanged at any rate, on the spot.
Sahih al-Bukhari 2177
Sahih... ولا تبيعوا منها غائبا بناجز ...
"And do not sell any of it that is absent for what is present."
Exchanges of money must not be deferred.
Where the ruling is recorded
- al-Hidaya, Kitab al-Sarf. Rules of exchanging gold and silver, the basis for currency.
- AAOIFI Shari'ah Standards, Standard on trading in currencies. Spot settlement, constructive possession by bank transfer, and the ban on forwards.
- Mufti Taqi Usmani, Fiqhi Maqalat, Essay on paper currency and its rulings. Each country's currency as a separate kind.
Checked by our team. For a more accurate answer to your own situation, consult a scholar. Quran translation by Sahih International. Hadith Arabic from the standard editions of the six books and the Muwatta, with gradings as recorded there; the English is our own rendering. Spotted a mistake? Tell us.