Plans by the countries imposing a blockade on Qatar may backfire according to the country’s central banker.
In addition to a land and air blockade being imposed on Doha, Saudi Arabia, the UAE, Bahrain and Egypt resorted to a financial war against Qatar to destabilise the small Gulf state. Leaked emails from the UAE’s ambassador in the US revealed that a scheme aimed at driving down the value of Qatar’s bonds and increasing the cost of insuring them, with the ultimate goal of creating a currency crisis that would drain the country’s cash reserves, was being devised.
Director of the Department of Research and Monetary Policy at Qatar Central Bank, Khalid Alkhater, warned that the plan to drive down the value of Qatar’s currency could backfire by hurting other dollar-linked currencies in the Gulf region and have an adverse effect on everybody and not just Qatar.
It’s deliberate economic warfare, a strategy to cause fear or panic among the public and investors to destabilise the economy
Alkhater told Reuters in a telephone interview, saying he was giving his personal views.
Alkhater, architect of Qatar’s monetary policy in the 2008 global financial crisis, explained that the plan to undermine the riyal involved trading Qatar government bonds at artificially low prices to suggest the economy was in trouble.
He said this had failed for a number of reasons including precautionary measures adopted by Qatar.
Central Bank Governor 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.
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 rather than dollars, which would create global demand for its currency.
But he remarked that undermining the riyal could have a contagious effect. He said that 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 US 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”.
He added that the boycott was forcing Qatar to 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.”
The Arab Gulf has been hit by a major crisis since 5 June after Saudi Arabia, the United Arab Emirates, Bahrain and Egypt cut off ties with Qatar and imposed punitive measures on the grounds that it supports terrorism.
Doha denied the accusations, saying it is facing a campaign of “fabrications” and “lies” that are aimed at imposing “tutelage” on its national decision.