890F.515/7–948: Telegram

The Secretary of State to the Embassy in Egypt

confidential   urgent

998. For Polk from State & Treasury.

Ref Legtel 402 July 9, [from] Jidda.1 Polk authorized travel Jidda as may be required.
Believe strongly Saudis should not rush into new currency plan without careful study and preparation. Information lacking in Washington for adequate evaluation of approach to problem outlined in Polk’s report No. 160 of June 5 from Jidda2 and, although we are in general sympathy with his approach, we feel that he can be most useful to Legation and SAG in this matter only on basis that he can, over period of some months, continue study of situation and report to Washington. Polk should feel free continue informal discussion with Saudis re entire range of problems.
For reasons stated in para 2 our comments on SAG’s plans are very tentative. However, we would advise strongly against plan to peg riyal at 65 per sovereign for reasons given Polk. Also believe, any attempt at present to fix internal value of riyal in terms of sovereigns will fail in view fluctuating gold and silver bullion prices in Middle East.
Re question linking currency to dollars or sterling, important question is not formal linking but question of what assets are held as currency reserves. As almost all Saudi exchange earnings are in gold or dollars, it would be reasonable to hold same as principal currency reserve since such assets expendable in any currency area. It follows that principal exchange quotation would be in dollars.3 [State and Treasury.]
  1. Not printed.
  2. The reference is to Minister Childs’ despatch 160; see footnote 5, p. 241.
  3. This telegram was repeated to Jidda as No. 280.