'File 8/15 Arab Series - 1933-1939' [‎50v] (100/434)

a State Bank in this country, I have the honour to enclose a record of part of
my conversation with Mr. Abdul Ghani Ydlibi on 17th March, when he 3 ame to
see me about the projects of the Arabian Development Syndicate, Ltd. The earlier
part of tne conversation related to oil concessions and 1 have reported separately
wnat Mr. Ydlibi said to me on that subject.
2 . 1 have embodied in the enclosed record a few general observations of my
own. 1 may add here that Mr. YYllibi impressed me very unfavourably at this,
my first meeting with him. I should say that the Saudi Government, ignorant
as they are of the intricacies of finance, would find it very difficult to control
the operations of gentlemen so astute as Mr. Ydlibi himself and his local repre
sentative Mr. ’Awayni. They might find it far from easy to limit the volume
of the note issue and they would almost certainly be incapable of coping with
the mysteries of foreign exchanges.
3 . I do not feel competent to express any view of the feasibility of the pro
ject in itself. 1 do not know for instance enough of the arrangements in force
in Iraq to judge whether the anlogy suggested by Mr. Ydlibi is sound and whe
ther it would be practical to combine ordinary banking with the functions of a
currency board. 1 am also puzzled as to what working capital would be available
for the banking business, if the whole of the subscribed capital were immobilised
to secure the note issue.
Enclosure 2 to Serial No. (47).
Memorandum by Sir Andrew Ryan, dated the 19th March 1934.
After speaking about other matters, separately recorded, Mr. ’Abdul Ghani
Ydlibi explained to Mr. Furlonge and myself on March 17 the bank scheme
which he said he was propounding to the Saudi Government.
The scheme is to create a Bank with a capital of £1,000,000 sterling. The
Saudi Government would put up half of this (or £550,000, Mr. YYllibi threw in)
and a British bank the other half. This capital would be applied to the purchase
of British War Loan, to be deposited in the Bank of England. The Bank would
issue notes on a sterling basis, which would be the only currency in this country—
apparently a forced currency. Such notes would be issued up to the limit of
the capital ; not beyond. All Government receipts would be paid into the Bank
and it would conduct all transactions in foreign currencies.
I asked (rt) whether Mr. Ydlibi had reason to think that the Saudi Govern
ment could put up the proposed share of the capital ; and (b) whether he was
assured of the support of a bank in Great Britain as regards the other half.
As regards (a) Mr. Ydlibi said that the Government would doubtless have
to make its contribution by stages. Mr. Furlonge understood him to sav that,
if {hey could not find all or some of the money, the British partners would lend
it to them at interest, an important point which I missed.
As regards (b) Mr. Ydlibi said that he had not yet enlisted the support,
but he anticipated no difficulty. The business would be perfectly secure, as the
capital would be held by the Bank of England.
I tried to elucidate the position which would be created as regards general
banking. Mr. Ydlibi clearly contemplated that the Bank would have a monopoly
of all banking and foreign exchange business. He was less clear as to whether
this would result from the attractions it would offer or from the establishment
of a legal monopoly. I suggested that in the latter contingencv, it would require
a very strong financial police to enforce the monopoly and that it would mean
ousting two established interests, viz., the Dutch Bank and Messrs. Gellatly
Hankey and Company, a British concern.
Mr. Ydlibi said that the Saudi Government would gain (a) by having a stable
and secure monetary svstem on a sterling basis and (b) by receiving a half share
of the profits of the Bank. He said that the scheme was similar to that which
had been adopted in ’Iraq and which had Yielded a profit of some £100,000 in
1932.
I asked whether the Saudi Government were to get a loan. He replied with
a definite negative and said that he had made this quite clear to the Saudi Gov
ernment.
Mr. Ydlibi said that the Minister of Finance had approved the scheme. He
seemed to hope that this, like his oil concession, might go through before he
leaves Jedda on March 21.