Office of the Historian

890F.515/27: Telegram

The Minister in Egypt (Kirk) to the Secretary of State

Cairo, August 17, 1943—4 p.m.
[Received 7:35 p.m.]

1474. Following telegram repeated to Jidda:

Department’s 1027, July 29, 9 p.m. For Morgenthau89 from Gunter.

“I have had conversations with Najib Bey Salha, director of Mines and Public Works of Saudi Arabia, Lebkicher of Casoc, Lloyd, British Ministry of State, and various members of Legation staff. Najib handles practically all negotiations relating to finance, transportation, and supplies for Saudi Arabian Government, is probably best qualified Saudi Arabian to discuss currency matters. As result of these discussions I am impressed urgency supplying silver under lend-lease to Saudi Arabia for minting riyals before pilgrimage.

2.
Najib states that approximately 15 million new riyals needed for rest of 1943. Since riyal has same weight and fineness as old rupee, approximately 5 million ounces of silver are needed. Minimum of 8 million riyals needed in connection with financing pilgrimage. These amounts seem reasonable.
3.
Between forty and fifty thousand pilgrims from abroad are expected. Pilgrims begin to arrive in September and peak of arrivals is mid-November. All pilgrims must reach Mecca by about December 7.
4.
Plans for financing pilgrimage are briefly as follows:
(a)
Pilgrims will pay tariff due Saudi Arabian Government in country of origin. Proceeds will be converted into sterling and credited to account of government in London. British apparently assuming responsibility for furnishing means of converting this balance into riyals. Amount involved is estimated at 15 million riyals.
(b)
Non-tariff expenditures expected to amount to about 20 million riyals; since these expenditures will be made internally, riyals must be supplied immediately against foreign currencies.
Whether pilgrims will carry sovereigns, currency, or vouchers denominated in riyals and acquired in country of origin not determined. How Saudi Arabian Government is to acquire sufficient riyals to meet demand is principal problem.
5.
Alternative to acquiring silver under Lend-Lease for minting riyals is for British to supply sovereigns which would be sold in market to acquire riyals. Sale of 300,000 sovereigns supplied so far this year as part of British subsidy has driven price of sovereigns from 55 to 40 riyals. British have promised additional 100,000 sovereign subsidy and probably will grant another 100,000 sovereign before end of year. It would be extremely difficult to market these sovereigns plus sovereigns supplied as means of acquiring riyals to finance pilgrims.
6.
Without doubt riyals are in very short supply. Najib states 20,000,000 riyals minted to date and estimates 8,000,000 coins have left country. A British estimate in coins in circulation is 3,000,000 but it does not consider coins exported since April 1942. So far I have been unable to reconcile these two estimates but British figure probably more nearly correct. Population is about 5,000,000 or 6,000,000.
7.
Reliable estimates of Government expenditures not available but internal expenditures expected to be about 45,000,000 riyals in 1944 (calendar year). Najib estimates external expenditure at 22,000,000 riyals for same period. Expenditures have shown unhealthful tendency to increase in recent years. If expenditures maintained at present level it is estimated that budget can be balanced when oil output reaches 200,000 barrels daily. Present production much below this level.
8.
I discussed with Najib question of return of silver after war. He saw no objections at all to such provision in agreement and felt confident King would agree. He stressed, however, that Saudi Arabia would not be in position to return silver for some time after war. I assured him that any time limit that might be specified would be subject to renegotiation.
9.
In view of urgency of supplying riyals, possibility of obtaining temporary loan of at least 2 million ounces of silver from India might be investigated. Dies are in India, and minting could be started quickly. This idea has been dismissed [discussed?] with Lloyd, who strongly favors it and has so cabled London. As alternative, silver might be obtained from Iran and first minting done by Iranian mint. I will investigate latter possibility in Tehran.
10.
I expect to leave on first available plane for Tehran, and after returning to Cairo will go to Jidda to discuss lend-leasing of silver with Moose. If it is decided to lend-lease silver to Saudi Arabia, [Page 891] it could be accomplished in usual manner except that we should specify wording of request. Lend-lease requests usually made by Saudi Arabian Government to Moose who transmits them to Washington.
11.
I am inclined to believe that trip to see King inadvisable at this time. As far as lend-leasing silver is concerned such trip unnecessary since Agib [Najib?] is person who would have to be consulted in any event. I believe it is too early to discuss other currency matters with King. Kirk is in agreement with this viewpoint. Najib informs me that King is committed in principle to use of paper currency and establishment of currency board of similar institution but that no commitments have been made nor any definite steps taken. British here inclined to view that present circumstances unfavorable for successful establishment of currency board. I believe my trip to Jidda should be confined to completing arrangements for lend-leasing silver and to gather additional information of assistance in laying groundwork for later mission on financial reform. Please let me have your instructions in this matter and with respect to lend-leasing silver.”
Kirk
  1. Henry Morgenthau, Jr., Secretary of the Treasury.↩