Sarf is the contract for selling one currency against another, originally gold and silver and today modern currencies, and it is valid only if both counter-values are delivered in the same session, without any delay.
Six goods, two rules: the basis in the hadith
The Prophet listed gold, silver, wheat, barley, dates and salt, requiring equality and hand-to-hand delivery when one of them is exchanged for the same kind. Sarf applies this rule to monetary goods, namely gold and silver.
Why banknotes and currencies follow the rules of gold
Most contemporary jurists and the fiqh academies consider that fiat money serves as a price, as gold once did. Euros, dollars or dinars are therefore subject to the same conditions of immediate exchange and, between identical units, of equality.
The same currency: strictly equal amounts
Changing a 100-euro note for coins requires receiving exactly 100 euros. Keeping 2 euros on the exchange would be riba al-fadl; any fee must pay for a distinct service that is clearly separated from the exchange itself.
Two different currencies: the rate is free
Between euros and dirhams, the parties set the rate freely, including a margin built into the dealer's quote. Only the requirement of immediate delivery remains: a difference in price is allowed, a difference in timing is not.
Taking possession before the parties separate
The heart of the contract is taqabud: each side receives its counter-value before the parties leave each other. If one of them departs without delivering, the exchange is void for the undelivered part, according to the doctrine adopted by AAOIFI.
Physical and constructive possession
Delivery can be physical, notes for notes, or constructive: a credit to the client's account, the handover of a certified cheque or an irrevocable electronic confirmation. The AAOIFI standard accepts these forms when they give each party effective control over the funds.
Market settlement periods and the T+2 debate
On the interbank market, a spot transaction usually settles two business days later. Some scholars and AAOIFI accept this delay as an unavoidable technical practice, others dispute it, and banks' Sharia boards decide case by case.
Paying for a foreign-currency purchase by card
When a traveller pays in dollars with a card debited in euros, the conversion happens during bank processing rather than at the counter. Many boards tolerate this mechanism, with the bank acting as agent, but the analysis varies with the card agreement.
What Sarf expressly prohibits
A conventional forward contract, which fixes a rate today for an exchange in three months, is excluded. So are currency futures and options, selling currency not yet received and swapping two debts in different currencies without immediate settlement.
A unilateral promise as a hedging substitute
To protect an importer against a rise in the dollar, some banks use a wa'd: only one party promises to buy or sell at a given rate on a future date. AAOIFI standards reject binding bilateral promises, which they treat as a forward contract.
Gold jewellery: cash purchases and trading in old gold
Buying gold jewellery for cash falls under Sarf: the price must be paid in full when the item is handed over, with no instalments. To exchange an old piece for a new one, the old item is sold first and the new one then bought.
Gold and metal accounts at Islamic banks
Some Islamic banks let clients buy allocated gold, identified and stored in the client's name, which meets the possession requirement. Unallocated gold accounts, where the client only holds a claim on the bank, are generally considered incompatible with Sarf.
Specialist external source
AAOIFI's Shariah Standards open with the standard on trading in currencies, which sets out the rules on possession, forward exchange and prohibited transactions.