BEGIN SUMMARY: FED RESERVE VICE PRESIDENT DEBS IN DIALOGUE
WITH SAMA GOVERNOR ANWAR ALI HAS PROBED PROBLEM OF MAIN-
TAINING VALUE OF SAUDI INVESTMENTS. THE SAUDI FINANCIAL
TEAM RAISED REAL QUESTIONS OF THE WISDOM OF THEIR PERMITTING THE CONTINUED GROWTH OF PAPER
ASSETS FOR OIL SALES IN THE ABSENCE OF MEANS TO PROTECT
SUCH ASSETS AGAINST INFLATION AND DEPRECIATION. THE U.S.
NEEDS TO TAKE THE LEAD NOW IN CREATING AN INDEXED BOND
SYSTEM TO PROTECT THE PRODUCING COUNTRIES SURPLUSES AGAINST
INFLATION IF NOT DEVALUATION TO FORESTALL FURTHER OPEC PRESSURE
ON PRICES OF OIL. END SUMMARY.
1. REFTEL DETAILED MOST OF DIALOGUE BETWEEN N.Y. FEDERAL
RESERVE FIRST VICE PRESIDENT RICHARD DEBS AND MEMBERS OF
THE SAUDI FINANCIAL ESTABLISHMENT, INCLUDING SAMA AND THE
MINISTRY OF FINANCE CONCERNING THE PURCHASE OF U.S.
GOVERNMENT BONDS. A SEPARATE AND WIDER SUBJECT (ALTHOUGH
RELATED TO MASSIVE PURCHASES OF USG BONDS AS A MAJOR OUTLET
AND PERHAPS THE MAJOR OUTLET FOR OIL PRODUCER COUNTRY
RESERVES) IS THE SUBJECT OF MAINTENANCE VALUE. THIS SUBJECT
HAS COME UP IN NUMEROUS PREVIOUS CONVERSATIONS WITH
GOVERNOR ANWAR ALI OF SAMA, BUT IT WAS HIGHLIGHTED DURING
THE DEBS CONVERSATIONS AND PROBABLY MORE DEEPLY DISCUSSED THAN
ON ANY PREVIOUS OCCASION.
2. THE SUBJECT IS IMPORTANT TO GOVERNOR ALI SINCE THE
MOST DAMAGING CRITICISMS OF HIS HANDLING OF SAUDI FINANCES
SINCE HE TOOK ON THE TASK 15 YEARS AGO HAVE RESULTED FROM
LOSS OF REAL VALUE (OR CONVERTIBLE VALUE AT THE LEAST) OF
THE SAUDI RESERVES DURING THE DOLLAR DEVALUATIONS OF 1972
AND 1973. IT IS ALL VERY WELL TO TELL THE SAUDIS THAT
THERE IS A MORAL OBLIATION TO PRODUCE OIL FOR USE BY
CONSUMING STATES BUT SAMA AND THE SAUDI FINANCIAL CARETAKERS
WILL FACE INCREASINGLY VOCAL OPPOSITION IN GOVERNMENT COUNCILS
THAT MAY WELL AFFECT OIL PRODUCING LEVELS UNLESS THEY CAN
PROVE BASIC GROWTH IN ASSETS IS TAKING PLACE AT LEAST
EQUAL TO THE POTENTIAL GROWTH IN VALUE FOR OIL IN THE GROUND.
3. WE WISH TO HIGHLIGHT THIS PROBLEM NOW AND SUGGEST THAT
ONCE AGAIN THE U.S. MAY HAVE TO TAKE THE LEAD IN FINDING
A WAY TO DEAL WITH THE EFFECTS OF INFLATION ON ASSETS OF
OIL PRODUCING COUNTRIES. MUCH OF THE WIND COULD BE TAKEN
OUT OF THE OPEC SAILS IN THEIR ARGUMENT FOR FURTHER
IMMEDIATE PRICE INCREASES IN JUNE IF A PLEDGE COULD BE GIVEN
THAT ASSETS WOULD BE GUARANTEED AGAINST DECREASES IN VALUE ASCRIBABLE TO INFLATION. IT SEEMS TO US THAT WITH
THE COMPEITION FOR OIL PRODUCING COMPANY INVESTMENTS IN THE
DEVELOPED ECONOMIES THERE WOULD BE A GOOD CHANCE OF OTHER
COUNTRIES QUICKLY JOINING THE U.S. IN AN INDEXED SAVINGS
SYSTEM AIMED AT REASSURING THE OPEC COUNTRIES AGAINST
INFLATION. SUCH A SYSTEM COULD BE EASILY INTRODUCED
FOR OUR GOVERNMENT BONDS AND PERHAPS FOR PRIVATE BONDS
IN CERTAIN CIRCUMSTANCES. WHAT THE USG DECIDED TO DO
EVEN IF ONLY IN THE WAY OF ANNOUNCED INTENTIONS, MIGHT
BE ENOUGH TO FORESTALL THE USE BY OPEC OF THAT PARTICULAR
ARGUMENT FOR INCREASING PRICES, WHICH IS CERTAINLY THE
INTENTION OF ALMOST EVERY STATE EXCEPT SAUDI ARABIA.
4. V.P. DEBS (WHO SHOULD NOT BE CHARGED AT ALL WITH
INSPIRING THIS IDEA) FORESEES MORE DIFFICULTIES WITH
GUARANTEEING AGAINST DEPRECIATION OF THE DOLLAR. IN ANY
CASE THIS IS PROBABLY OF LESS IMPORTANCE. IT IS POSSIBLE
THAT A SPECIAL INDEXED BOND WOULD HAVE TO BE CREATED WHOSE
MARKETABILITY WOULD BE ASSURED. IF SOMETHING CAN BE DONE
ON THIS PROBLEM BEFORE THE CONTEMPLATED VISIT OF PRINCE FAHD
IN LATE MAY, IT WOULD SERVE AS A CENTERPIECE OF OUR EFFORTS
ON FISCAL COOPERATION WITH THE SAUDIS UNDER THE NEW
AGREEMENT.
AKINS
Source: https://www.wikileaks.org/plusd/cables/1974JIDDA02264_b.html
Summary: Timeline overview
Thank you, all of these articles are really interesting.
ReplyDeleteWow, this one is a bombshell.
ReplyDeleteJeff,
ReplyDeleteAbsolutely.
Also, I found an interesting website that you might enjoy reading
http://chiefacoins.com/Database/Micro-Nations/Saudi_Arabian_Monetary_Agency.htm
Milamber
Thank you for that link.
DeleteTwitter @onlyonewowwow
"MORE DIFFICULTIES WITH GUARANTEEING AGAINST DEPRECIATION OF THE DOLLAR. IN ANY CASE THIS IS PROBABLY OF LESS IMPORTANCE. IT IS POSSIBLE THAT A SPECIAL INDEXED BOND WOULD HAVE TO BE CREATED WHOSE MARKETABILITY WOULD BE ASSURED."
ReplyDelete'Special indexed bond of assured marketability' is a great definition for paper gold.
https://www.wikileaks.org/plusd/cables/1975OECDP06707_b.html
ReplyDelete