Qatari central banker: Efforts to hurt Qatar’s riyal may backfire

Efforts to hurt Qatar’s riyal may backfire on region, central banker says

DUBAI: Some Arab states making the effort to destabilize Qatar’s riyal but efforts to push down its value could backfire by damaging other dollar-linked currencies in the market, a Qatari central banker said.

Khalid Alkhater, currently in the united kingdom on leave out from the central bank, was commenting on moves by Saudi Arabia, the United Arab Emirates, Bahrain and Egypt to target Qatar. Doha’s rivals say it facilitates terrorism, this Qatar denies.

“It’s strategic economic warfare, a technique to cause fear or panic and anxiety amongst the public and investors to destabilize the economy,” Alkhater told Reuters in a phone interview, saying he was giving his personal thoughts.

Saudi Arabia, the United Emirates, Bahrain and Egypt cut diplomatic and trade ties with Qatar in June. A good number of independent analysts think its economy, with huge gas and financial reserves, can weather the storm and you should not see any serious probability of a devaluation on the riyal, whose dollar peg of 3.64 riyals has long been enshrined in law since 2001.

Alkhater, architect of Qatar’s monetary policy during the 2008 global financial crisis, said some of the strategies to undermine the riyal involved trading Qatar government bonds at artificially low prices to point out the economy is in trouble.

This was unsuccessful considering that the market in Qatari bonds was illiquid so trading high amounts were difficult and since Qatar got precautionary steps, said Alkhater, on sabbatical leave doing research at the Britain’s University of Cambridge. He decided not to identify the methods.

Alkhater ascribed low quotes for Qatar’s riyal in the offshore market on a few banks - that he said were from countries boycotting Qatar, without naming the institutions - trying to manipulate the market by exchanging the currency at weaker levels than on the onshore market. He still did not present proof.

The riyal exchanged onshore a week ago not far from its official peg of 3.64 to the US dollar, however, it traded at only 3.8950 offshore on the Reuters conversational dealing platform.

Equity index compiler MSCI cited this gap a couple weeks ago when it said it would use offshore forex trading rates to value Qatar’s stock market, essentially changing the weighting of Qatari equities in MSCI’s growing market index.

Qatar’s central bank reacted by saying it may well provide currency would need to all investors and be working together with banks to make sure that transactions can be conducted normally.

Central bank governor Sheikh Abdullah bin Saud al-Thani, in office since 2006, said last month that the government and the central bank could provide the banking system with state reserves and the holdings of Qatar’s sovereign wealth fund.

Alkhater said Qatar, the world’s top liquefied natural gas (LNG) exporter, could in future consider other steps to bolster the riyal if needed, such as taking payments for LNG exports in riyals instead of dollars, that would create global interest in its currency.

But he said there seemed to be a threat that efforts to undermine the riyal could shake confidence in dollar-linked currencies of other oil-reliant Gulf Arab states.

“It could spark contagion across a region that is absolutely linked to the US by means of dollar pegs, and that is presently struggling with financial troubles and economic challenges simply because of low oil prices,” he said, calling attacks on Qatar’s riyal “a weapon of mutual destruction”.

Any kind of increase of pressure on the currency of Bahrain, whose debts are rated junk, could potentially cause Manama to search for support from Saudi Arabia, whose own economy is struggling a giant state budget deficit caused by few years of poor oil prices, Alkhater said.

He added that the boycott was forcing Qatar to always be more self-sufficient in agriculture, food processing, and light manufacturing, accelerating a long-term goal to diversify the economy. “Now Qatar has to expedite it out of necessity.”


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