refers to a credit note that was issued by the Government of Nazi Germany
, from 1934
on, under the guise of a company named "Metallurgische Forschung", or "MEFO
" for short. They were a fundamental part of the re-inflation of Germany's economy under Finance Minister Hjalmar Schacht
The German government needed to spend a large amount of money to fund rearmament. However, it faced two problems. First, rearmament was illegal under the terms of the Treaty of Versailles
, and secondly there was a legal interest rate
limit of 4.5%.
The government would normally borrow extra funds on the money market by offering a higher interest rate. However, because of the limit it was unable to do so. And a large, visible government deficit would have attracted attention.
An imaginary company
formed the limited liability company Metallurgische Forschungsgesellschaft, m.b.H., or "MEFO" for short. The company's "mefo bills" served as bills of exchange
, convertible into Reichsmark
upon demand. MEFO had no actual existence or operations and was solely a balance sheet
entity. The bills were mainly issued as payment to armaments manufacturers.
Mefo bills were issued to last for six months initially, but with the provision for indefinite three-month extensions. The total amount of mefo bills issued was kept secret.
Essentially, mefo bills enabled the German Reich to run a greater deficit than it would normally have done. By 1939, there were 12 billion Reichsmark of mefo bills, compared to 19 billion of normal government bonds.
This enabled the government to fund rearmament, and do so in a stealthy manner.
This strengthened the German economy by providing the government with various goods and services which it was then able to reinvest in the economy, fueling its growth, and preparing it for Hitler
's aggressive foreign and domestic policies. Not only did the bills serve the above functions, but they also concealed the military expenditure forbidden by the Treaty of Versailles.