Money and Means of Payment in Halakha (3)

 

III. MONEY AND INTEREST

 

A. DEFINITION OF INTEREST

 

            The questions about the definition of money with respect to prohibited interest are numerous.  One which is discussed in the Gemara is how to relate to the presence of multiple currencies.  Do we view each one as money with respect to itself - as is the case with acquisitions - or do we need to define an ultimate standard?  The Gemara concludes that one currency defines an ultimate standard.  This is the ruling of the Shulchan Arukh (YD 162).  The Rema there permits lending gold coins; it would seem as though he considers both silver and gold to be money, contradicting our principle.  However, the Acharonim explain away this discrepancy: the Taz explains that gold is permissible not because it is money, but because everybody owns some gold and to do sea be-sea is permissible; the Shakh explains that the Rema is merely explaining that in our day, gold and not silver is the standard of value.

 

            One practical result of this ruling is that loans in foreign currency are considered "sea be-sea."  American Yeshiva students in Israel who borrow dollars from each other should be aware that they are subject to the restrictions of this halakha.  Many poskim feel that the problem is not acute because the fact that the exchange rate is publicized every gives dollars the status of "yatza ha-sha'ar;" and in any case the lender usually has dollars somewhere; but one should be aware that the problem exists.

 

            This suggests that of the three "defining characteristics" of money mentioned above, the critical one is the "standard of value" criterion.  It is important to know which criterion is definitive because even though all three properties are interrelated, in extraordinary circumstances they may be separated.  For instance, in times of very high inflation, there is a tendency to evaluate goods in terms of some stable foreign currency.  ("Usually the money unit is also the unit of account, but that is not essential.  In the German hyperinflation of 1922-1923, dollars were the unit of account for some firms, whereas the mark was the medium of exchange."  Dornbusch and Fischer, Macroeconomics, second edition p. 219) - in Israel, apartment values and rentals are to this day typically quoted in terms of dollars.  But even in times of true hyperinflation - which can reach millions of percent per year - the local currency seldom loses its function as a medium of exchange, even though durable goods become the store of value.  This is a remarkable fact which demonstrates the enormous utility of money as a medium of exchange.

 

            If the "standard of value" criterion is truly the determining one for the laws of interest, then in such inflationary conditions the stable foreign currency should be the relevant standard for interest.  In fact, many poskim have ruled that in such times it is permissible to link loans to a foreign currency or to a price index.  Torat Ribit (19:41; the footnote quotes Igrot Moshe, Yoreh Dea III:37, Shevet Ha-Levi VI 232, among others) writes: "When the currency is not stable at all and the exchange rate declines from day to day (galloping inflation), the poskim have written that it is possible to be lenient and lend with linkage to the dollar (and possibly even linkage to the price index)."

 

            The background for such a ruling could be explained as follows: The gemara rules in Bava Kama 97b that even if the coins are made heavier, payment should be made with them and there is no problem of usury.  The new coin is considered to embody the same standard of value as the old.  But the discussion continues to distinguish between "machmat tiba zil" - a revaluation due to a change in the value of money per se (equivalent to a decrease in the money supply in the case of fiat money) and "machmat tara zil" - a change due to market conditions.  (See Rashi there, s.v. Machmat tara.)  If it is the money that has changed in value and not the commodities, the debtor may be required to repay a different quantity of money.  (See Rav Aaron Levine, "Inflation Issues in Halakha," Journal of Halakha and Contemporary Society, Vol.5, Pesach 5743 (Spring 1983), p. 25-30.)

 

            Practically speaking, with fiat money it is impossible to distinguish on a short term basis between these two determinants of the price level (since changes in money supply make their impact on prices with "long and variable lags," to use Milton Friedman's famous expression).  However, in the case of galloping inflation, it is obvious that the money is changing value, and not the market.

 

B. METHODS OF LOANING AND REPAYING - NOTES, BANKNOTES, CHECKS

 

            An unrelated question with relevance for the laws of interest is the status of the particular financial instrument in which the loan is made.  Has the lender given the borrower money or its equivalent, or only a promissory note of some third party?  The importance of this question stems from the ramifications of the pesak of Tosafot and the Rosh (Bava Metzia 61a) that mi-de'oraita, interest is forbidden only in goods which are "gufo mamon" - of intrinsic value (even symbolic value).

 

            The stipulation of "gufo mamon" usually eliminates notes of indebtedness; yet Tosafot do not mention this case!  The Rosh explains that we do not need a special exemption for the case of notes, since the prohibition of interest is only relevant by something which is a loan - i.e., is given to be spent.  In other words, there is no realistic scenario of interest on a loan made by a note or bond.

 

            The Bet Yosef (YD 161, s.v. U-piresh Ri) objects that it is obvious that there are instances of interest on a loan through a note: for instance giving a note for 100 in return for a note for 200 - where transferring the note also transfers the debt.  According to the Bet Yosef, even a special gezerat ha-katuv could never permit such a transaction.  After all, the essence of the ribit prohibition is to forbid interest on debts!  (Understanding of the Taz, YD 161:1.)

 

            The Pilpula Charifta on the Rosh, however, seems to go to the opposite extreme.  According to the Bet Yosef, an exemption in the case of transferring debts via notes is unthinkable; according to the Pilpula Charifta's understanding of the Rosh, such an exemption is superfluous.  Rather, all would agree that there is no interest mi-de'oraita in such a case!  The reason seems to be that any private debt is really a good whose value rises and falls, and trading a debt for a debt is not the same as undertaking and repaying a loan.  (This is the explanation brought in Brit Yehuda 2/(18), credited to the Chavot Da'at in the Taz cited.)

 

            The question of what kind of interest on notes the Rosh really meant to exempt is mostly of theoretical interest, since the agreement of the Acharonim is that there is indeed ribit min ha-Torah by notes.  The Shakh (YD 161:1) rules stringently and writes that the Shulchan Arukh and Rema also seem to hold the stringent view.  The Taz and Chavot Da'at there also rule le-chumra.  (See Michael J. Broyde, "The Practice of Law According to Halakha," Journal of Halakha and Contemporary Society, Sukkot 5751, volume XX, p.27-28 for another point of view.)  Still, there are Acharonim who hold the lenient view; and the Brit Yehuda (2:7, and note 17 there) argues that it is at least a sefeka de-oraita - an unresolved doubt.

 

            We have noted that the question arises even regarding a loan made in cash, according to Rav Shlomo Kluger who considers modern cash no more than a promissory note.  However, the consensus is that cash is considered money, and therefore the discussion is more relevant for checks and bank transfers, which are undoubtedly the instruments of most interest-bearing financial loans.

 

            A bank "deposit" is, of course, not really a deposit but rather a debt of the bank to the balance holder.  A loan made by bank transfer is actually a transfer of the debt from the lender to the borrower.  The borrower can withdraw cash if he desires by collecting on his debt from the bank.  According to the Pilpula Charifta, it seems that the Rosh views this transaction as inherently permitted according to Torah law; the Bet Yosef would also view it as permissible according to the approach of the Tosafot and Rosh that we require intrinsic value; whereas according to normative halakha we must consider this a Torah prohibition.

 

            The ruling on a loan made by check will depend on the approaches mentioned above:

 

            1. If the check is only an order to pay, then the bank is the agent of the lender.  In the case of a Jewish bank, as soon as the check is drawn it is as if the money was given by the lender, and there is no possible leniency (except for the remarkable "shitat Rashi" cited in the Mordechai, Bava Metzia 5:338, which permits lending and borrowing through a Jewish agent for the following reason: "There is no agency for a transgression" - "ein shaliach le-devar aveira").  It seems likely that even according to Rashi our case would be forbidden, for the reasons that we will explain later regarding a non-Jew.

 

            What about the case of a Gentile bank?  The gemara, in Bava Metzia 71b, discusses a case where a non-Jew has borrowed money at interest from a Jew - say Reuven - and is about to repay the loan.  A second Jew - Shimon - approaches the non-Jew and asks him to give the money to him, instead of to the lender Reuven; Shimon will pay the non-Jew the interest that will accrue to Reuven.  The gemara rules that even if this transaction takes place with Reuven's presence and approval, it is only forbidden mi-derabanan, since the agency of a non-Jew is valid only rabbinically.  According to some Rishonim (Rabbenu Tam and the Rosh; see Tur, YD 168), the conclusion of the gemara is that this is permitted even in the first instance.

 

            This seems superficially like our case: the Gentile bank owes money to the Jewish account holder; instead of paying back account holder Reuven, it gives the money to borrower Shimon, who in the end will also return the money through a non-Jewish middleman - the same or another bank.  So this case should be either only rabbinically forbidden, or according to some authorities even permissible!  According to this approach, scripturally-forbidden usury is almost impossible in non-Jewish countries.

 

            However, there seems to be a fallacy in this understanding.  The reason the above case is only forbidden de-rabanan is because the borrower has no technical legal obligation whatsoever to the supposed lender, but only to the non-Jew; in turn the non-Jew has not technically been relieved of his obligation to the lender.  Even so this is forbidden (according to most Rishonim) because of the transparent subterfuge involved.  But in the case where the non-Jew's payment to Shimon is considered a true repayment, there is no question of agency; the non-Jew has paid Reuven, who has lent to Shimon by asking the non-Jew to give the money to him.  Transacting an interest-bearing transaction this way is definitely a Torah prohibition. (See Bet Yosef, Yoreh Dea 168:9, s.v. U-mihu afilu le-Rabbenu Tam.  Also see Rambam, Hilkhot Malveh U-loveh, 5:4.)

 

            How do we determine if the bank is Jewish or Gentile?  The Minchat Yitzchak (see volume III, responsa 1 and 31) writes that we go by the ownership of the majority of shares, and many poskim have used this criterion.

 

            2. If the check is the promissory note of the lender, then the leniency of Tosafot seems to apply (according to all understandings).  On the other hand, paying back the loan via a check of the borrower is questionable; the essence of a loan is that the borrower receives it and gives his note to the lender!  (See Chokhmat Adam 139:9 who implies that selling one's own note at a discount is forbidden de-oraita.)

 

            3. If a check actually effects the transfer of the debt to the payee, then from the moment the check is given the bank owes the payee and not the account holder.  This case is identical to that of loan by direct bank transfer, discussed above.  The payee holds a note enabling to collect from the bank.

 

            According to this approach, there is a simple way of avoiding the interest prohibition.  A promissory note - and presumably any other debt - of a third party is permissible to be sold at a discount according to all opinions (Tosefta, Bava Metzia 4:2, quoted in Rif, Bava Metzia 36a, in the name of the Yerushalmi).  For this reason the Brit Yehuda (15:17) permits selling one's own check at a discount.  The language of sale, and not of lending, is critical to this leniency; post-dated checks are not included because they create as opposed to transferring a debt of the bank.  Rav Bleich, loc. cit., vehemently opposes this leniency, defending his view that the check is at most an obligation of the payer - and not of the bank.