Mefo bills

The Mefo bills (named after: Metallurgical Research mbH ) was a financing instrument of the state in the form of an exchange credit without the use of bank loans. They were designed in 1934 by the then Minister of Economics Hjalmar Schacht and served the ( veiled ) to finance job creation and upgrade of the Armed Forces for the Second World War.

Task

About the task of Mefo bills, the Reich Minister of Finance, Count Schwerin von Krosigk expressed in a letter dated 1 September 1938 Adolf Hitler:

"Since taking over the way power is deliberately been explored to finance the large one-off costs of the first job creation and the Rearmament through bank loans. So far as one that is not by the normal use of the money and capital market, let allow the annual growth of savings in Germany, was financed by exchange (work and Mefowechsel ), which are discounted at the Reichsbank, ie by Geldschoepfung. "

Model for the Mefo bills were the " OEFFA change" that served the job creation and the development of infrastructure by public authorities from 1932.

The kingdom financed government spending on the upgrade by not paid in bank notes, but change took that were issued by the arms industry. However, did not accept the kingdom, even the exchange, but a front company created for this purpose called Metallurgical Research mbH.

At the same time Mefo change the financing of rearmament measures were without recourse to the international capital market. They were regarded as trade bills and did not have to be reported in the Reich budget and national debt book. Since it was eminent representatives of German industry in the shareholders of Metallurgical Research mbH, the Reichsbank could discount the change in the defense industry for the purpose of refinancing the Metallurgical Research mbH after the Reichsbank law.

The envisaged by the Reichsbank law limiting the national debt was circumvented by the Mefo bills. It was not until long after the output stop they became known as Mefo bills.

Operation

The Mefo change was a draft.

Related

The person who was instructed from the Mefo change ( drawee ), was the Metallurgical Society of m. b. H. The certificates issued by the military industrial change took these GmbH. So they apparently financed a portion of the armament procurement of the Wehrmacht. The share capital of the Metallurgical Research Society recorded in May 1933 four large well-known German company: Siemens, Gutehoffnungshütte, Krupp and Rheinmetall in the amount of one million Reichsmarks. The kingdom was not a share capital, not to act as partners in appearance. The Mefo mbH was designed from the outset as a sham company, so that the notes payable in the kingdom of household and national debt book did not have to be reported. The company this company was a cover name. Indeed, it should and could not be held liable for military spending of the Empire, the Metallurgical Research Society; the GmbH was refinanced rather by discounting the exchange by the Reichsbank. The management was provided by a representative of the Reichswehr Ministry and a representative of the Reichsbank. The Reichsbank put the rest of the staff for the administrative settlement of exchange transactions.

Exhibitor

All companies exporting tasks on behalf of the state, in particular produced armaments, now exhibited Mefo bills. On the one hand Mefo bills were paid their claims on the kingdom by the assumption. On the other hand, the supplier could use the Mefo bills as a means of payment, with their endorsement they in turn owed ​​to other companies used performance.

Remittances

The persons to whom the statement from the change was ( remittances ), were the creditors of the issuer. The Mefo bills were like ordinary change not be redeemed on sight, but were payable at a certain date. The duration of the exchange was initially six months, and was repeatedly extended, so that the changes were ultimately five years in circulation. Instead the maturity to wait that remittances were the bills discounted, so sell it to a bank.

Economically, the Mefo bills were nothing more than a credit to the military economy of the kingdom. This way of financing has been trodden since the Reichsbank law larger loan amounts that went over 400 million RM, not allowed.

Discounting

The Reichsbank declared himself ready to rediscount these bills at any time. The purpose of the " Mefo change", however, was to give the state a loan funds in hand. Would the military economy their bills discounted will immediately state the required quantities of notes but would pay off, so that a cash increase ( money creation ) begönne. In order to prevent an immediate discounting such bills with an annual interest rate of 4 %. Thus, the arms producers were motivated not pay the bills prior to maturity at the Reich. They related the change rather than popular means of payment, that too brought on top of that interest income.

Aval

The Metallurgical Research mbH had with registered capital of 1 million RM only a thin capital base; because of its legal status as a corporation a direct liability of Siemens, Krupp, Rheinmetall and Gutehoffnungshütte was excluded. The required to refinance the Mefo GmbH Diskontierungsgeschäfte the Reichsbank were but not guaranteed. Therefore, the exhibitors of the change needed a security. Therefore, the empire was a change for the fulfillment of the obligations of the Mefo GmbH, waiving the Commission to have recourse ( selbstschuldnerische aval ).

Scope

A total of 1938 Mefo bills in the amount of twelve billion Reichsmarks were issued from 1934 to 31 March. They financed about 45 % of the accrued to date military expenditure (up to the end of 1939 there were about 20%). However, eight billion were received by the market of these twelve billion RM. So you were not redeemed at the Reichsbank. Schacht's intention to prevent a noticeable inflation, thus went on.

As of April 1938, the Mefo bills were replaced by short-term Reich Treasury notes. The coming to redeem Mefo bills could, in addition to the cash payment, in turn, be exchanged for other short-term exchange. In the period from March 31 1938 to March 31, 1939 exploded the output of these short-term treasury bills. So RM 4.2 billion of which was spent in just one year.

Reichsbank and Reich Ministry of Finance negotiated the end of 1938 from an amortization schedule for past due in 1939 Mefo bills. It stipulated that in 1939 already 3.2 billion RM should be repaid to change. Furthermore, should every year one billion RM ( including interest) to be paid out of the realm budget. The RM 11.9 billion to Mefo changes should thus be repaid after 17 years.

Shaft itself, it was, who said the issue of new Mefo change and thus became unpopular with Hitler. In protest, he joined and also other members of the Reichsbank on January 20, 1939 resigned from his post as president of the Reichsbank.

Issued Mefo bills since 1934 ( according to shaft ):

90 % of Mefo bills were held by the commercial banks. Only 10% were still in the business economy. Specifically, were still in circulation:

The main reason why the banks were very interested in the possession of the Mefo change is due to the statutory provisions of the balance sheet, the special exchange. They were allowed to be booked under the item " trade bills ." Thus, the Mefo bills could be "hidden" even before foreign shareholders. Another advantage of the Mefo bills was that they were not yet included in the kingdom of household in the books of the National Debt Office. The secrecy was thus preserved.

With the output stop for Mefo change output started the so-called Sola change the Gold Discount Bank from 1937 to 1945. They had virtually the same function and features as the Mefo bills.