Reuven, an American tourist in Israel, wishes to borrow some Israeli shekels from his friend and fellow tourist Shimon, and arranges to repay the loan when they return to the US. Is there any Halachic objection to this arrangement, and if not, if Reuven repays the loan in US dollars should he use the exchange rate of the day of the loan or the day of repayment?
Answer: The halachos of Ribbis – the prohibition of paying interest – are numerous and complex, but we shall try to present a very brief summary with regard to the subject at hand.
The Torah forbids paying interest on a loan. So it would be forbidden to borrow $100 and repay $120. To borrow a kilo of flour and to return 1.5 kilo would likewise be forbidden. However, there should be no problem borrowing a kilo of flour and returning a kilo. Nonetheless, Chazal prohibited such loans (with exceptions, as will be explained), for the following reason.
In situations of inflation or deflation, the Halachah regards the currency as being stable and everything else as fluctuating. So if one borrows, for example, $100, one pays back $100, even if there was deflation in the interim and the $100 has more buying power than it did at the time of the loan. If, however one borrows anything other than currency, e.g. food, goods etc. there is a concern that in the interim there may be inflation, and the goods will increase in value, so that if one repaid the same amount of goods one would actually be paying interest. For example, if one borrowed a kilo of flour from a neighbor, and returned it a week later, and in the interim the price of flour increased, returning a kilo of flour would entail repaying the loan with something that is worth more than the original loan, which involves the prohibition of paying interest.
Therefore, in general Chazal prohibited lending anything other than currency, for fear that the value may increase before the repayment of the loan.
However, there are two leniencies built in to this prohibition. Firstly, if the price is stable, it is permitted, because there is no concern that the price will increase. Secondly, if the borrower has at least a small amount of the borrowed item, it is also permitted. For example, it would be permitted to borrow a kilo of flour if the borrower has at least some flour of his own at home.
What about different currencies? The consensus of opinion among the Poskim is that foreign currency that is not readily usable in the country where the loan is taking place is considered as goods rather than currency.
So to borrow American dollars in Israel would not be permitted unless the borrower owned at least one American dollar of his own. (It has been reported that, in the particular case of US dollars in Israel, Rav Elyashiv shlit”a was inclined to regard dollars as local currency since many significant transactions such as real estate dealings were quoted in dollars. However, since the weakening of the dollar in the last couple of years has caused the market to move towards shekels, it is doubtful whether this would still apply.)
Now we approach the question in hand. What if a loan took place in the local currency, but the repayment takes place in a different country in the local currency of the place of repayment? For example, one lends shekels in Israel with the repayment in US dollars in the US.
There would appear to be a difference of opinion as to how to regard this loan.
Rav Yosef Gelber (Nesivos Sholom 162:1) is inclined to consider this as a loan of money, as this is the local currency at the time of the loan. As such, there would be no problem with the actual loan. When the time would come to repay the loan in the US, one could either pay the same amount of shekels that was borrowed or alternatively, pay the amount in US dollars at the exchange rate of the time of repayment.
(If you want to fix the repayment in US dollars at the exchange rate which is valid at the time of the loan, in effect the “lender” is buying dollars, and it would only be permissible if the borrower has somewhere in his possession the entire value of the loan in US dollars – see Shulchan Aruch Y.D. 175:4)
Rav Yaakov Blau (Bris Yehudah 18 footnote 15), however, is inclined to view the loan as being a loan of goods rather than currency. Because the condition of the loan was that it be repaid in the US, not Israel, he regards it as if the loan actually took place in the US. And since the shekel is not a valid currency in the US, such an arrangement would be prohibited unless the borrower had at least one shekel in his possession at the time of the loan.
Thus in our case, in order to satisfy all opinions, if Reuven has at least one shekel in his possession (if he doesn’t have any shekels, he can ask Shimon or someone else to give him a shekel as a gift), he can ask Shimon to lend him shekels in Israel with the repayment due in the US. Ideally they should determine that they are enacting a loan of shekels, and then it would be permitted to repay in the US either shekels or US dollars at the exchange rate which is valid at the time of the repayment.
However, if they want to fix the repayment in US dollars at the exchange rate which is valid at the time of the loan, in effect the “lender” is buying dollars, and it would only be permissible if the borrower has in his possession the entire value of the loan in US dollars.