Coll 6/91 'Saudi Arabia. Policy of H.M.G. Qn. of credits and guarantee of assistance to Ibn Saud.' [‎71r] (142/680)

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°(Ljnillion rials in silver. Our subsidy had amounted in 1940 to close on
£400,000, last year it had amounted to over £3,800,000. This was the cost to
ourselves and the value to Ibn Saud was substantially greater. It seemed to us
that both Governments should not give financial assistance on a large scale to
Ibn Saud unless our efforts were correlated.
Wallace Murray agreed with this general view. He said that he
recognised that if silver and gold were given to Ibn Saud, they did not produce
any revenue, and a scheme could possibly be worked out by means of which
revenue would be provided for Ibn Saud.
Mr. Pinsent said that he thought we might possibly work out a new plan
of assistance by which help would be given by His Majesty’s Government and
the United States Government, according to the quantities of goods supplied
from the sterling area or from the dollar area. He understood that Saudi Arabia
was eligible for credit Lend-Lease, and that no fresh approach to Congress
would be involved. Mr. Jordan had recently proposed a revised programme for
import of goods, which he assumed was agreed by the Middle East Supply Centre.
He read out the following figures :—
Tons.
Cereals ... ... ... ... ... 48,000
Dates ... ... ... ... ... 5,000
Tea ... ... ... ... ... ... 400
Sugar ... ... ... ... ... 4,000
Cotton piece-goods .., ... ... ... 1,300
Total value : £2,400,000 at present prices, but might well be about £3 million
when supplied. Possibly an arrangement could be made to share this between
the two Governments in the manner he had described.
Mr. Wallace Murray said that the idea seemed reasonable at first sight.
Mr. Pinsent continued that connected with the subsidy problem there was
also the currency problem of Saudi Arabia. The assistance given to Ibn Saud
by His Majesty’s Government and the American Government included not only
a considerable quantity of gold sovereigns supplied by us (which it was most
inconvenient for us to produce), but also an amount of silver which was calculated
to be more than equal to all the silver previously in circulation in Saudi Arabia.
It was obvious that the silver which was sent was being re-exported to the
Persian Gulf The historical term used to describe the body of water between the Arabian Peninsula and Iran. or other destinations especially as the official sterling value of the
rial coin was substantially less than that of the silver content. What was needed
in our view was a currency system which would stop the drain of silver and
would have adequate powers of expansion to meet the needs of the pilgrimage.
He outlined the scheme which the British Treasury had propounded in
Washington for a paper currency linked to sterling, with special arrangements
to meet dollar requirements. The currency would be under the control of a
currency board. The Treasury had not preconceived ideas about this currency
board, except that it had better be outside Saudi Arabia. If London was incon
venient, it could be in Cairo. It might be compoaed-of a Saudi Arabian, a British
and an American member. Unfrrrtmiately, the United States Treasury had not
approyfid-Ahi^Adetr'Trrrrl hajL-put forward a scheme for a currency linked both
jjy-sterling and to the dollar and to silver. We were afraid that this would be
unworkable in practice and had sent our observations to Washington.
Mr. Wallace Murray thanked Mr. Pinsent for his interesting and very lucid
explanation. He said that he had not himself followed the currency discussions,
though he quite understood their importance. Ibn Saud was always asking the
American Government for advances and he realised, of course, that the position
was most unsatisfactory. The British comments on the United States proposal
had reached Washington since his departure. He seemed to indicate that the
proposed link with sterling only was the principal difficulty with the United
States Treasury in accepting the British proposals. He wondered if a paper
currency would ever find acceptance in such a primitive country.
Mr. Pinsent pointed out that paper was acceptable in Iraq, Syria, Palestine
and Egypt, and he thought that it should prove acceptable, at any rate in the
settled areas such as Jedda. Mecca and Medina, where it was principally needed
for financing the pilgrimage.
Mr. Pinsent said that we proposed to proceed for the first half of the present
vear on the basis of the import programme listed above, but it was then hoped