Firstly, you use the word ‘proof’ in your question, yet there was no proof ever mentioned by the claimant that paper money is Haraam. By proof we mean Shar’ee proofs, not simply disadvantages. To make something Haraam one has to have Dalaa-il (sound shar’ee proofs).
We accept that paper money is not the Islamically ideal means of exchange. It definitely has its elements of deception, and has been easily manipulated by western powers to subjugate economically weaker nations. The ideal would be to deal in gold and silver, which have real and intrinsic value. Therefore it would be the duty of a true Islamic State to revert to gold and silver as the standard means of exchange, which could then be represented by paper money.
However, it does not follow that under the present circumstances it is Haraam to use paper money. Islam is a practical way of life, and the Fuqahaa (jurists) of Islam have laid down guidelines by means of which we can practice on this Deen in every age. They have explained that if any commodity becomes the means of exchange in any society, and this is the norm, then value will be attributed to that commodity based on the norm of that society. A simple example would be that in some societies in the past shells were used as the standard means of exchange. Although shells in themselves do not hold intrinsic value, since the society attributed value to it, such items may be used as a means of exchange.
The fact that paper money has been manipulated by certain powers, and they have designed their system of Riba around it, does not render paper money Haraam. It is the transaction of Riba and the act of manipulation that are Haraam, and not the currency itself. If tomorrow they design their schemes around metals, are we then going to say that dealing in metals is Haraam. Certainly not! In fact, one who is aware of the detail rules of Riba would be aware that gold and silver are more susceptible to the contract of Riba than currencies are.
On a practical level, one can understand that it would be virtually impossible to do without paper money. Now that this so called Maulana considers paper money as Haraam, one wonders what he would do if, for example, he had to go for Hajj. Does he take trunks full of coins along because paper money is Haraam. One has to be realistic.
For details on the development of paper money, and the Shar’ee rulings of its usage, refer to “Al Qadhaayah al fiqhiyyah al muaasirah” by Mufti Taqi Uthmaani Saheb. This is an excellent work on the subject.
and Allah Ta'ala Knows Best
Moulana Imraan Vawda