What’s a Qatari Riyal worth in this current political crisis?

Currency from the Gulf state of Qatar, a Qatari Riyal bank note sits with a U.S. Dollar note displayed for a photograph in Dubai, United Arab Emirates, on Wednesday, Nov. 21, 2007. Crude oil climbed above $99 a barrel for the first time as a slumping U.S. dollar made crude cheaper for foreign buyers. Photographer: Charles Crowell / Bloomberg News

As Qatar’s showdown with the Saudi-led alliance enters a second month, its currency peg is still intact — though not everyone can use it.

Qatari banks are providing enough cash to meet domestic business needs at 3.64 riyals per dollar — within the regulator’s preferred range — while turning away investors financing trades deemed speculative, according to five people with knowledge of the matter. That’s forcing such transactions offshore, where lenders are trading the riyal at weaker rates, the people said, on condition of anonymity because they’re not authorized to speak publicly on the issue.

The divergence shows how the gas-rich Gulf nation is trying to limit the impact of the Saudi-led boycott on its economy and conserve its dollar reserves, even if it means allowing a parallel offshore exchange rate to emerge. While economists say the dollar peg isn’t under threat, Qatari banks have significant funding demands ahead of the 2022 soccer World Cup and rely on non-residents for almost a quarter of their deposits.

Officials at Qatar’s central bank didn’t respond to a request for comment. The regulator said in a July 3 statement that the riyal’s exchange rate was “absolutely stable against the U.S. dollar,” and that it “will guarantee all exchange transactions for customers inside and outside Qatar without delay.”

Qatar National Bank, the country’s biggest lender, said in an email that it and other local lenders are “determined to undermine speculative trading in the Qatari riyal.”

But that doesn’t relieve the pressure on the currency in the forwards market. Contracts that expire in 12 months jumped about 400 basis points since the spat began on June 5 to 600 as of 9:49 a.m. in Doha. That’s a record high on a closing basis.

‘Commercial Transaction’

“QNB ensures FX pricing for all counterparties at all times where a commercial transaction is the basis for the trade within the Qatar Central Bank guidelines,” the bank said.

The gap between the domestic and offshore rates widened last week during a public holiday in Qatar, according to data compiled by Bloomberg, before the central bank returned to providing dollars to local lenders at the official price. The central bank typically buys and sells dollars to keep the exchange rate within a range of 3.6385 to 3.6415 riyals per dollar.

“The peg is not broken,” Farouk Soussa, the London-based chief economist for the Middle East at Citigroup Inc, said in an email, adding that the offshore rate reflects tighter liquidity in the interbank market used by exchanges without access to Qatar’s central bank.

“With a very open domestic banking system, any business that does not yet have access to a local bank account can always open one in order to receive the official rate,” he said.

The benchmark Qatar Exchange Index for stocks has dropped about 10 percent since the crisis began, and on Tuesday, Moody’s Investors Service cut its credit outlook to negative.

“It would only be fair to say that the peg has been broken if the Qatari central bank is no longer willing or able to offer dollars at the 3.64 exchange rate,”  Jason Tuvey, an economist at Capital Economics in London, said by email. “So long as this remains the case, which we think it will, the offshore market will probably fade away over the coming weeks.”

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