Qatar’s central bank has told banks in the Gulf state not to swap its currency with entities outside the country without prior approval, five sources told Reuters, in a move bankers say seeks to end the riyal’s divergence against the dollar.
The Qatari riyal officially settled at 3.64 to the dollar in 2001 and has in the offshore market been estimated below its peg for the most part since mid-2017 when four Arab countries boycotted Doha in a political wrangle, which was settled early last year.
In the statement sent to treasury directors at the local bank on Monday, the Qatar Central Bank (QCB) ordered banks not to enter into any swap agreements to acquire riyals or dollars with any entity outside Qatar, the sources familiar with the matter said.
The notice said banks should obtain permission from QCB before carrying out any such transactions, they added. QCB, in response to a Reuters query, said it “is not taking any action to limit the capacity of banks to engage in swap transaction with counterparties”.
“Such matters are left to the commercial and risk management judgment of banks,” the central bank said, adding that any such directive would be posted on its website.
A currency swap deal involves the exchange of one currency for another over a specific time horizon along with the payment of a premium. It is a tool used to hedge against currency fluctuations or lock in a fixed exchange rate.
In 2021, the United Arab Emirates, Saudi Arabia, Egypt, and Bahrain dropped a row with Doha which had seen four nations cut economic, political, and travel ties with Qatar over claims it supports Islamist militants, which Doha rejected.
During the dispute, tiny but wealthy Qatar, among the world’s leading gas exporters, sued banks in Saudi Arabia and the UAE, blaming them for hurting its economy by what it dubbed overseas currency manipulation.
Qatar ended a separate suit against Abu Dhabi Commercial Bank and Emirates NBD Bank earlier in 2022 and a New York judge closed a case against Saudi Arabia’s Samba Bank, but it’s not immediately evident whether a case against First Abu Dhabi Bank is still pending.
During the 3-1/2 year boycott, foreign currency, particularly the dollar, was scarce in Qatar, bankers say. QCB demanded banks seek permission to buy USD on a case-by-case basis.
Post-boycott there was a projection that the price of the Qatari riyal would fall in line with the peg but that has not happened. On Tuesday, brokers were estimating 3.6805/3.6855 riyals to the dollar in the offshore market.
Qatar’s central bank foreign reserves and hard currency liquidity have increased almost 3.8% in the last two years to 211.3 billion riyals in July, according to official data, compared to 203.6 billion riyals in 2021.
“It doesn’t make sense that Qatari riyal is still not trading at the peg,” said an economic expert at Arab Financials who doesn’t want to be mentioned by name due to the sensitivity of the matter.
“Qatar is receiving more dollar revenue than ever before and, because of all the fans coming to Qatar for the World Cup, there is bound to be a much larger than normal demand for riyals on international markets.”
Qatar hosts soccer’s World Cup in November.