“… The majority of the Council of Senior Scholars has decided that banknotes paper money is an independent sort of money. Thus, Saudi paper money is a sort of money and American paper money is another sort of money and thus, every form of paper money is an independent sort of money.
Consequently, the following legal rulings are applied to paper money:
First: Paper money is liable to the two kinds of Riba just as the case with silver and gold and other different sorts of money. This entails the following:
(a) It is absolutely impermissible to exchange paper money for paper money of the same sort or of a different sort, such as silver, gold, or on credit.
For example, it is not permissible to exchange one American dollar for five Saudi riyals, more, or less on credit.
(b) It is not permissible to exchange paper money for paper money of the same sort in excess, whether on credit or on the spot.
For example, it is not permissible to exchange ten Saudi riyals in paper form for eleven Saudi riyals in paper form.
(c) It is absolutely permissible to exchange paper money for paper money of different sorts on the spot. It is, thus, permissible to exchange the Syrian or Lebanese lira for a Saudi riyal in paper form or sliver, for more or less value.
It is also permissible to exchange the American dollar for three Saudi riyals, or for more or less value, if this is done on the spot.
It is also permissible to exchange a silver Saudi riyal for three Saudi riyals in paper form, or for more or less value, on the spot because this is considered bartering two different sorts even if they share the name but differ in reality.
Second: It is obligatory to pay Zakaah on paper money, if its value reaches the least of the Nisaab (the minimum amount on which Zakaah is due) of gold or silver, or if it reaches the Nisaab when added to other money and commercial commodities possessed by their rightful owners.
Third: It is permissible to use paper money as the capital in Salaam sale (payment in advance) and partnerships.
Source: Fataawaa Al-Lajnah Al-Daa’imah, alifta.net