Muwa’adah refers to bilateral promising or exchanging promises in relation to contractual acts or intents. In other words, it constitutes a promise vis-à-vis another promise, each from a different party to a transaction. In trading in currencies, bilateral promising to purchase and sell currencies is impermissible by shari’ah if the promise is binding, regardless of the purpose of trading (pure trading, hedging currency risk, etc). Nevertheless, a unilateral promise (wa’ad), i.e., a promise from one party without the other’s, is permissible whether it is binding or non-binding.
Correspondingly, trading in currencies via parallel purchase and sale is forbidden by shari’a due to the lack of delivery and receipt of the two underlying currencies (this makes the transaction tantamount to a forward sale of currency). Also, such a trading involves an exchange transaction that is conditional on another exchange transaction (effectively, this is a case of conditional option in currency transactions, which shari’a forbids). Furthermore, this trading is based on a bilateral promising (muwa’adah) that is binding on both parties, and this is unacceptable by shari’ah.
Whatever is the case, bilateral promising in the exchange of currencies is prohibited because, in the opinion of jumhur, binding bilateral promises from two parties to a contract is essentially equivalent to a contract (obligation for obligation). Also, it is impermissible on the basis that there is a delay between the time of promise and the possession of countervalues.
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