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MEFO was the more common abbreviation for (German: MEtallurgische FOrschungsgesellschaft m.b.H., English: Society for Metallurgical Research LLC), a dummy company set up by the Nazi German government during 1934 to finance the German re-armament effort before World War II.
This dummy company had a nominal capital of one million Reichsmark. It was one of the key components of the Nazi Germany re-armament program, and was invented by Hjalmar Schacht, who then was head of the Ministry of Economics, and Plenipotentiary for the War Economy.
After assuming power in 1933, during 1935 the Nazis realised that re-arming Germany would require funds that were not likely to be generated from taxes or public loans. In addition, the need to keep the rearmament effort secret led to the creation of this dummy company.
The transactions that led to the re-armament financing were conducted as follows:
- Armaments manufacturers were contracted to produce arms
- Mefo bills of exchange were drawn by these contractors, and accepted by MEFO Company
- The bills were received by all German banks for possible re-discounting with the Reichsbank.
- The bills were guaranteed by the Reich for five years after issue.
This system continued to be used until April 1938, when almost 12 billion Reichsmark of bills were outstanding. At that time the first of these bills, which were guaranteed for five years, would come due in 1939 when the holders would likely present them to the Reichsbank for payment.
This method of financing enabled the Nazi government to obtain large loans from the Reichsbank which was prohibited under then existing statutes. Direct lending to the Government by the Reichsbank had been limited by statute to 100 million Reichsmark.
The large nature of these outstandings led eventually to a confrontation between the Reichsbank and the German Finance Ministry in 1939, leading to the resignation of Hjalmar Schacht, the author of the whole strategy on 20 January 1939.
- Our armaments are also financed partly with the credits of our political opponents. - Hjalmar Schacht in a memorandum to Adolf Hitler dated 3 May 1935.