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890F.515/9: Telegram

The Chargé in Saudi Arabia (Shullaw) to the Secretary of State

34. Reference my 29, April 21, 6 p.m. British Chargé today told me that Saudi Government had informed him of intention to request gold under Lend-Lease from the United States to meet present difficult financial situation.

We duly expressed the opinion that if we should supply gold the same problem would arise as that presently facing British in currency issue plan. Namely, flight of gold to neighboring countries, particularly Iraq and Turkey, where gold in terms of sterling is more valuable.

Chargé went on to say he had estimated 600,000 sovereigns required to cover rial note issue during first year until confidence established. Entire amount not required immediately but to be supplied as note issue expanded. Possible flight of gold to Iraq and Turkey difficult to control because of inadequate border patrol and serious consideration because of danger gold is already reaching Axis through these channels. Wikeley mentioned that estimated 95,000 sovereigns smuggled into Iraq in last 4 months and of this it is probable considerable amount is from Saudi Arabia. London, he said, was studying methods of safeguarding gold covering proposed currency issue.

Repeated to Cairo.

Shullaw