Cross-Currency Loans

Question

Yankel, from Boro Park, is in Eretz
Yisroel
for his niece’s wedding. He sees that silver candlesticks,
etc. are available at very good prices. Since he did not budget for such
purchases, he asks his good friend, Berel, for a loan. Berel readily lends
him as many shekels as he requires. Yankel promises to repay him in
dollars when he gets back to the U.S. Does repaying a shekel loan in
dollars pose any problem?


Answer

Your neighbour wishes to borrow a twenty-kilo sack of
potatoes. “I’ll give you a sack in return next week,” she says. The Shulchan
Oruch
(Yoreh Deah 162:1) rules that it is forbidden to lend an
amount of produce on condition that the same amount of produce is returned
(seoh b’seoh – see Tractate Bovo Metzia 75a). Indeed, it
is forbidden to lend any item which is meant to be consumed on these terms
– with the exception of local currency. The reason for this rabbinic
prohibition is the concern that the item will increase in value in the
interim. Thus, the borrower will in effect be giving back a greater value
than he received. The correct way to lend a sack of potatoes would
therefore be according to its monetary value. If the price of potatoes
rises in the meantime, it is still possible to pay back in potatoes –
but a lesser quantity. The Shulchan Oruch adds (Paragraph 2) that
if the borrower has even a small quantity of the commodity he wishes to
borrow (which the lender may give him), he can then borrow any quantity of
that commodity with the intention of repaying in kind.

Furthermore, if both parties know that this commodity
has a fixed market value, this kind of transaction is always permitted
(Paragraph 3 – see Note 9 in the Shach). Why is local currency
the exception to this rule? Surely its value can also fluctuate, possibly
resulting in the lender receiving a greater value than he originally lent?
The answer is that we consider the value of local currency to be constant;
it is just the value of commodities which rise and fall (Knesses
Hagedolah
and others). Does this really mean that borrowing a loaf of
bread in order to repay tomorrow with an identical loaf is forbidden? The Remo
(to Paragraph 1) states that such transactions are permitted. He argues
that people are generally not particular about fluctuations in value of
such small items in such small amounts. It would therefore be permitted to
repay with a similar loaf of bread even if the price had actually risen
overnight.

We mentioned that only local currency may be lent in
order to be repaid in the same currency. It therefore follows that foreign
currency may not be lent for repayment in that currency. One may not repay
a loan of Swiss Francs with the same amount of Swiss Francs in any country
apart from Switzerland (unless the value in local currency has not changed
in the interim). In any other country, one would have to value the Swiss
Francs in local currency at the time of lending and later repay that value.

However, when it comes to the U.S. dollar in Israel, the situation is
different. Many large and small items are priced in dollars and one can
often pay in greenbacks, especially when it comes to more expensive items.
Therefore, there are many Halachic authorities who are of the opinion that
the dollar is considered a second local currency and consequently dollar
loans may be repaid in dollars (Rav Moshe Feinstein, in Igros Moshe,
Yoreh Deah 3:37 and Rav Elyashiv, inter alia). However, others
argue that since (a) one can not buy day-to-day items such as basic
groceries and bus tickets with dollars and (b) the Government in the past
has made it illegal to carry out transactions in dollars, dollars do not
have the status of local currency (see Bris Yehudah, Chapter 18,
Note 15). Even if one follows the more stringent opinion, a heter iska
drawn up before the loan would solve the problem.