Many UK banks stop selling Qatar riyals as diplomatic crisis mounts
The currency has become volatile in offshore market
LONDON/DUBAI: Several British banks said on Friday they had stopped dealing in Qatari riyals, as the diplomatic crisis surrounding the Gulf country disrupted overseas trading of its currency.
Saudi Arabia, the UAE, Bahrain and Egypt severed diplomatic and travel links with Qatar on June 5, accusing it of supporting terrorism and courting regional foe Iran, in allegations that have ignited a regional crisis between the US allies.
Offshore trade of the riyal has become increasingly volatile and illiquid as a result, raising risks for banks.
A spokeswoman for Britain’s Lloyds Banking Group said a “third-party supplier,” which handles its foreign exchange service had ceased trading in Qatar’s riyal as of June 21.
“This currency is no longer available for sale or buy-back across our high street banks including Lloyds Bank, Bank of Scotland and Halifax,” she said.
Tesco Bank said it had halted dealings in the riyal, while Barclays stopped trading riyals for retail customers but continued the service for corporate customers, a source said. Royal Bank of Scotland said it had stopped trading riyals for retail customers.
Banks from the four Arab states that have cut ties with Qatar reduced or halted riyal transactions earlier this month, as have some other countries.
Some big international banks have continued riyal business; however; a spokeswoman for HSBC said on Friday that the bank was still providing riyals for high street customers.
This week the riyal traded between offshore banks as low as 3.81 to the US dollar, its lowest level this decade and more than 4 percent below its peg of 3.64 to the dollar.
Most bankers in the Gulf do not think the peg will break; onshore, the Qatari central bank has continued to provide ample supplies of dollars near 3.6415 under its peg mechanism. The world’s biggest liquefied natural gas exporter has huge reserves with which it could defend its currency.
In an effort to reassure markets that the riyal was still widely traded overseas, the Qatari central bank declared in the early hours of Friday that it would guarantee all dealings for customers inside and outside Qatar.
“Qatari riyal’s exchange rate is absolutely stable against the US dollar, and its exchangeability inside and outside Qatar is guaranteed at any time at the official price,” the central bank said, calling reports that some exchange companies had stopped buying the riyal “baseless.”
So far, however, the central bank has not taken the step which bankers say may be necessary to stabilize the offshore currency market: Massive dollar-selling intervention.
Some Gulf bankers believe the central bank thinks such radical action is unnecessary; Qatar gets most of its dollar supplies from oil and gas exports, which are controlled by the government, so it does not need to fear offshore trade will suck dollars away from onshore companies which need them.
A source at an investment management firm, however, said intervention to drive the offshore riyal rate back to 3.64 could be dangerously expensive for the central bank.
“In a month, two months’ time, we would start to see the reserve’s numbers going down massively, and that could start a panic on the currency.” The alternative to intervention is “the currency grinds down weaker and weaker from here,” he added.