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Reuters
DUBAI
Some Arab states are trying to destabilise Qatar's riyal but efforts to drive down its value could backfire by hurting other dollar-linked currencies in the region, a Qatari central banker said.
Khalid al Khater, currently in Britain on leave from the central bank, was commenting on moves by Saudi Arabia, the United Arab Emirates, Bahrain and Egypt to isolate Qatar.
"It's deliberate economic warfare, a strategy to cause fear or panic among the public and investors to destabilise the economy," Khater told Reuters in a telephone interview, saying he was giving his personal views.
Saudi Arabia, the United Emirates, Bahrain and Egypt cut diplomatic and trade ties with Qatar in June. Independent analysts think its economy, with huge gas and financial reserves, can weather the storm and do not see any risk of a devaluation of the riyal, whose dollar peg of 3.64 riyals has been enshrined in law since 2001.
Khater, architect of Qatar's monetary policy in the 2008 global financial crisis, said part of the strategy to undermine the riyal involved trading Qatar government bonds at artificially low prices to suggest the economy was in trouble.
This failed because the market in Qatari bonds was illiquid so trading in high volumes was difficult and because Qatar had taken precautionary steps, said khater, who is on sabbatical leave doing research at Britain's University of Cambridge.
Khater blamed low quotes for Qatar's riyal in the offshore market on some banks ” which he said were from nations boycotting Qatar, without naming the institutions ” seeking to manipulate the market by exchanging the currency at weaker levels than on the onshore market.
The riyal changed hands onshore last week very close to its official peg of 3.64 to the US dollar, but it traded 3.8950 offshore on the Reuters conversational dealing platform.
Equity index compiler MSCI cited this gap last week when it said it might use offshore foreign exchange rates to value Qatar's stock market, potentially changing the weighting of Qatari equities in MSCI's emerging market index.
Qatar's central bank responded by saying it would provide currency needs to all investors and was working with banks to ensure transactions could be conducted normally.
Qatar Central Bank Governor HE Sheikh Abdullah bin Saud al Thani said last month that the government and the central bank could support the banking system with both state reserves and the holdings of Qatar's sovereign wealth fund.
Khater said Qatar could in future consider other steps to bolster the riyal if needed, such as taking payments for LNG exports in riyals rather than dollars, which would create global demand for its currency.
But he said there was a risk 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 which is tied to the U.S. through dollar pegs, and which is already suffering from financial distress and economic difficulties due to low oil prices," he said, calling attacks on Qatar's riyal"a weapon of mutual destruction".
Any increase of pressure on the currency of Bahrain, whose debt is rated junk, could cause Manama to seek support from Saudi Arabia, whose own economy is battling a big state budget deficit due to three years of weak oil prices, Khater said.
