Reuven and Shimon had been friends since their yeshivah days in New York. Over the years, their lives diverged — Reuven entered real estate, while Shimon built a small import business.
Some years later, Shimon approached Reuven. “I need a loan to expand,” he said frankly. “Could you please lend me $100,000?”
Reuven agreed. A proper loan document was drawn up, and the money changed hands.
Time passed and Shimon’s business prospered. Both men meanwhile moved to Israel, and their finances now revolved mostly around shekels.
“Instead of wiring dollars from the States,” Shimon suggested, “let’s settle in shekels. It’ll save us both fees.”
“That’s fine,” said Reuven. But then he paused. “Which exchange rate do we use?”
Shimon frowned. “Good question. Do we go by the rate from when I borrowed the money or today’s rate?”
“I assume today’s rate,” said Reuven. “But even then — which one? The shaar yatzig (official representative exchange rate), the bank’s rate or the rate at the change place? They’re not the same.”
The two sat in thoughtful silence. On a $100,000 loan, even a few agorot’s difference meant thousands of shekels.
“And what about the buy/sell difference in the exchange rate?” Shimon added. “If I gave you dollars, you would not be able to exchange them even for the median rate! If I give you a higher rate than you could get when exchanging — could that be a ribbis issue?”
Reuven sighed. “Looks like we need a psak before we finalize anything,” he said.
Together they drafted their question for Rabbi Dayan:
“Which exchange rate do we follow?”
“When you borrow a certain currency, you owe that currency,” replied Rabbi Dayan. “Thus a loan granted in dollars is owed in dollars” (C.M. 42:14; Sma 42:37; Bris Pinchas 16:18).
“Even if both parties agree later to have the loan repaid in local currency instead, it should be according to the exchange rate at the time of payment (Y.D. 163:1).
“However, the Poskim are unclear as to the precise exchange rate to be used: the shaar yatzig, the bank rate, or the rate commonly available at currency exchanges. Although the discrepancy is usually just a few agorot, this can amass to a significant amount when dealing with large sums.
“Furthermore there is a discrepancy between the buy and sell rate of foreign currency. The bank offers a lower exchange rate when it accepts dollars and gives you shekels (“buy”) than the rate it demands when giving you dollars for your shekels (“sell”). There is also a difference between the exchange rate for cash and bank transfers.
“Because repaying other than the original currency requires the agreement of both parties, either party can refuse an exchange rate that he considers disadvantageous and insist on returning the original currency.
“However even if the borrower is willing to pay a high exchange rate, this could constitute unstipulated ribbis, avak ribbis, which is still prohibited mi’d’Rabbanon (Y.D. 160:4).
Bris Yehuda 20:13[27] allows repaying even according to the higher “buy” exchange rate. He reasons that if the primary debt is in dollars, then if the lender were to use the shekels he receives to buy the owed amount of dollars, he would need that many shekels.
Bris Yehuda refers, though, to Minchas Yitzchak (4:99:3) who indicates that a person may not repay a loan in a manner that will benefit the lender a commission that he would have to pay otherwise.
Thus Bris Yehuda’s position is logical when the lender would normally want to retain his money in dollars. However if the lender would likely want to convert his dollars into shekels, it might be a ribbis issue for him to get a higher conversion rate for his dollars than he could get otherwise, at the borrower’s expense (see, however, Pischei Choshen, Halvaah 4:1[1]).
Thus a rate no higher than the median rate would seem fairer,” concluded Rabbi Dayan. “However because the concern is only of ribbis mi’d’Rabbanan, if Reuven demands the higher rate and Shimon is willing to pay it, they can rely on the lenient opinion of Bris Yehuda.”
Verdict: A loan is due in the currency it was granted. The parties can agree to repay in local currency according to the exchange rate at the time of payment. Some are lenient to allow the borrower to pay even the higher “buy” rate.
Based on writings of Harav Chaim Kohn, shlita
