102.1/10441a: Telegram

The Secretary of State to the Minister Resident in Saudi Arabia ( Moose )

45. 1. Please explain to the King that the Treasury in presenting its proposal contained in cable No. 111, December 15, 1943,52 did not envisage that it would be necessary to lend-lease additional silver for riyals to be sold to foreign legations and to commercial companies for the reason that: the dollar receipts derived from the sale of riyals would be convertible into gold which could either be used to defray expenses which would otherwise deplete the King’s stock of riyals or could be sold directly for riyals at a price which would give the government a net profit in riyals on the transactions.

In view of Saudi Arabia’s critical shortage of riyals, Treasury requests that you make the following proposal to the King: The Treasury will recommend the lend-leasing of an additional 3,437,500 ounces of silver for the minting of 10 million riyals that will be sold at a rate of 30 U.S. cents per riyal to foreign legations and commercial companies in 1944, provided: (1) that the King leaves on deposit with the Federal Reserve Bank of New York 60 percent of the dollar proceeds from the sale of all riyals lend-leased to Saudi Arabia for the purpose of acquiring silver to be returned to the U.S. Treasury; and (2) that Saudi Arabia will pay the costs of minting and shipping the riyals to Jidda from the dollar proceeds of the sale of riyals, which costs will be over and above the amount set aside for the purchase of silver to be returned to the U.S. Treasury.

The King would be free to invest the dollar funds held with the Federal Reserve Bank in United States Government securities and the income from such securities will be at the free disposal of the Government of Saudi Arabia. The King would also be free to purchase, with the funds not placed in reserve, after allowing for minting and shipping costs on riyals, gold in bars of 5 to 400 ounces, at the price provided in the provisional regulations issued under the Gold [Page 678] Reserve Act, as such may be in effect at the time of each such purchase, which price is now $35.00 per fine ounce plus ¼ of one percent. Gold purchased may be exported to Saudi Arabia as facilities for transport become available. See cable No. 111 for details as to net realizable by the Saudi Arabian Government on such gold shipments.

With reference to the minting and shipping costs of the riyals, it may be well to explain to the King that such costs are as a general rule borne by the government receiving silver for coinage under lend-lease arrangements. In the case of the 7 million riyals previously minted by the United States mint, an exception was made because of Saudi Arabia’s lack of dollar exchange. The costs were therefore extended as lend-lease aid by the United States to the Government of Saudi Arabia.

Please ascertain whether the King will assent to this proposal. The documents providing for the lend-leasing of an additional 3,437,500 ounces of silver on the above terms will be cabled to the Legation at Jidda within a few days.

2.
If the King agrees to the proposal, suggest that the Government of Saudi Arabia begin selling riyals to commercial companies and the Legation from the 7 million riyals arriving from the United States.
3.
It will be necessary in connection with the sale of riyals for the Government of Saudi Arabia to open appropriate accounts with the Federal Reserve Bank of New York. These accounts will be the subject of a later cable,53

[Here follows reference to staff level discussions of a proposed plan for a Bank of Saudi Arabia.]

Hull
  1. Foreign Relations, 1943, vol. iv, p. 916.
  2. Telegram 56, April 12, not printed; see footnote 61, p. 681.