Sure, it's forbidden in some jurisdictions. That doesn't mean it no longer exists in those jurisdictions.
Can you layout a simple step by step scenario with 2 users (if users are issuers not gateways) who are trading BTC/USD in Ripple?
They can trade using their trust graph. If there is a path from A to B, then they can conduct a transaction and their balances as well as those of the individuals in between in the trust graph will be updated. Periodically each party can settle the netted transactions with their direct neighbours. Settling can be done with any payment mechanism, including cash.