Mefo change
The Mefo bills , named after the Metallurgische Forschungsgesellschaft mbH (Mefo), were a financing instrument in the form of a bills of exchange . Government expenditure could be financed with them without having to resort to bank loans. Mefo was founded in July 1933 with a share capital of one million Reichsmarks and its sole purpose was to conceal the fact that the German Reich was in debt to finance armaments. The bills of exchange were drafted by the then Reichsbank President Hjalmar Schacht and, in addition to financing the armament of the Wehrmacht for the Second World War, also served to create government jobs. The acceptances of Mefo were guaranteed by the Reich to the Reichsbank so that they could refinance them. The bills of exchange peaked in 1938 at 12 billion Reichsmarks. Because they ran for up to five years, they would have had to be repaid by the Reich by 1938 at the latest. Schacht's successor in the office of Minister of Economics, Walther Funk , declared, however, that the Reich would not redeem the Mefo bills, but would instead give the Reichsbank Reich bonds. The Reichsbank warned against this rescheduling , which it saw as a threat to the German currency. Schacht was then dismissed as President of the Reichsbank and Funk was again his successor. When the Reichsbank was subordinated to the Reich Chancellor Adolf Hitler in 1939 , it was obliged to give the Reich credit in any amount desired. This made the financing by Mefo change unnecessary.
task
The Reich Finance Minister, Count Schwerin von Krosigk , commented on the task of the Mefo exchange in a letter dated September 1, 1938 to Adolf Hitler :
“Since the seizure of power, the path has been deliberately taken to finance the large one-off expenses of first job creation and armament by taking out loans. Insofar as this could not be made possible through normal use of the money and capital market, ie the annual increase in savings in Germany, the financing was carried out through bills of exchange (change of labor and Mefo), which are discounted at the Reichsbank, i.e. through money creation. "
The model for the Mefo change was the “ public transport change ”, which from 1932 onwards served to create jobs and build infrastructure by local authorities.
The Reich financed government spending on rearmament by not paying in banknotes but accepting bills issued by the armaments industry. However, it was not the Reich itself that accepted the change, but a front company called Metallurgische Forschungsgesellschaft mbH, founded especially for this purpose .
At the same time, the Mefo bills were used to finance armament measures without using the international capital market. They were considered trade bills and did not have to be shown in the imperial budget or in the imperial debt register. Since the shareholders of Metallurgische Forschungsgesellschaft mbH were respected representatives of German industry, the Reichsbank was able to discount changes in the armaments industry in accordance with the Reichsbank Act for the purpose of refinancing the Metallurgische Forschungsgesellschaft mbH .
The limitation of national debt provided for by the Reichsbank Act was circumvented by the Mefo bills. It was not until long after the issuance stopped that they became known as Mefo-Wechsel.
functionality
The Mefo change was a draft (drawn bill of exchange).
Related
The person who was instructed from the Mefo exchange ( drawee ) was the Metallurgische Forschungsgesellschaft mb H. The exchange issued by the military industry was accepted by this GmbH. With this it apparently financed part of the armaments procurement of the Wehrmacht . In May 1933, four large, well-known German companies, namely Siemens , Gutehoffnungshütte , Krupp and Rheinmetall, signed the share capital for the Metallurgische Forschungsgesellschaft in the amount of one million Reichsmarks . The Reich did not provide any share capital in order not to appear as a partner. Mefo mbH was conceived from the beginning as a bogus company so that the bill liabilities in the Reich budget and in the Reich debt register did not have to be shown. The company of this venture was an alias. In fact, the Metallurgical Research Society should not and could not be liable for the armaments expenditure of the Reich; Rather, the GmbH was refinanced by discounting the bills of exchange through the Reichsbank. The management was provided by a representative of the Reichswehr Ministry and a representative of the Reichsbank . The Reichsbank provided the remaining staff for the administrative handling of the exchange transactions.
The bills of exchange had to have the signature of a third guarantor so that the Reichsbank could refinance them. Initially, private banks took on this task. In order to make it more difficult for the private banks to keep track of the finances of the Reich, another bogus company was founded, the Handelsgesellschaft für Industrieprodukte mbH (Hafi). Hafi had the same shareholders as Mefo.
Exhibitors
All companies that carried out tasks on behalf of the state, in particular armaments production, now issued Mefo bills of exchange. On the one hand, by accepting the Mefo bills of exchange, their claims against the Reich were canceled. On the other hand, the suppliers could use the Mefo bills of exchange as a means of payment , with the endorsement of which they in turn served liabilities to other companies on account of performance .
Returns
The persons to whom the instruction from the bill of exchange was (remittents) were the creditors of the issuers. Like normal bills of exchange, Mefo bills could not be redeemed on sight, but were payable on a specific date. The duration of the bills was initially six months and was repeatedly extended so that the bills were in circulation for five years. Instead of waiting for the due date, the returnees could discount the bill of exchange, i.e. sell it to a bank.
Economically, the Mefo bills were nothing more than a loan from the military economy to the Reich. This way of financing was chosen because the Reichsbank Law did not allow larger loan amounts in excess of RM 400 million.
Discounting
The Reichsbank agreed to rediscount these bills at any time . The sense and purpose of the "Mefo-Wechsel", however, was to give the state a loan. If the armed forces were to discount their bills immediately, the state would have to pay out the necessary amounts of banknotes, so that an increase in cash ( money creation ) would begin. In order to prevent immediate discounting, the bills of exchange were given an annual interest rate of 4%. This motivated the arms manufacturers not to redeem the bills of exchange with the Reich before they fell into disrepair. Rather, they used the bills of exchange as a popular means of payment, which also brought interest income on top of that.
Bills of exchange
Metallurgische Forschungsgesellschaft mbH had only a thin capital cover with a share capital of RM 1 million; Siemens, Krupp, Rheinmetall and Gutenhoffnungshütte were not directly liable due to their legal form as a corporation . However, the Reichsbank's discounting transactions required to refinance Mefo-GmbH were not guaranteed. That is why the exhibitors of the bills needed a security. The Reich was therefore responsible for the fulfillment of the bill liabilities of Mefo-GmbH, waiving the defense of the advance complaint (absolute bill guarantee ).
scope
From 1934 to March 31, 1938, Mefo bills totaling twelve billion Reichsmarks were issued. They financed approx. 45% of the armaments expenditure accrued up to then (up to the end of 1939 it was approx. 20%). Of these twelve billion RM, however, eight billion were taken up by the market. So they were not redeemed at the Reichsbank. Schacht's intention to prevent noticeable inflation thus paid off.
From April 1938 the Mefo bills were replaced by short-term Reich treasury notes. The Mefo bills to be redeemed could, in addition to the cash payment, be exchanged for other short-term bills of exchange. In the period from March 31, 1938 to March 31, 1939, the issue of these short-term treasury bills exploded. In just one year, RM 4.2 billion was spent.
At the end of 1938, Reichsbank Directorate and Reich Ministry of Finance negotiated a repayment plan for the Mefo bills due in 1939. This stipulated that 3.2 billion RM should be repaid in bills of exchange in 1939. In addition, one billion RM (including interest) should be paid out of the imperial budget every year. The 11.9 billion RM in Mefo bills should be paid off after 17 years.
It was Schacht himself who forbade the issue of new Mefo bills of exchange and thus made himself unpopular with Hitler. In protest, he and other members of the Reichsbank directorate resigned from their post as Reichsbank president on January 20, 1939.
Mefo bills issued since 1934 (according to Schacht):
- 1934 2.14 billion RM
- 1935 2.72 billion RM
- 1936 4.45 billion RM
- 1937 2.69 billion RM (until March 31, 1938)
90% of the Mefo bills were owned by the commercial banks. Only 10% were still in the commercial economy. In detail, the following were still in circulation:
- 1938 11.9 billion RM
- 1939 11.4 billion RM
- 1940 10.8 billion RM
- 1941 RM 10.1 billion
- 1942 RM 9.5 billion
- 1943 8.8 billion RM
- 1944 RM 8.1 billion
The main reason why the banks were very interested in owning the Mefo bills is due to the legal requirements for accounting for special bills. They were allowed to be posted under the balance sheet item " Commercial bills ". In this way, the Mefo bills could also be "hidden" from foreign shareholders. Another advantage of the Mefo bills was that they were not shown either in the Reich budget or in the books of the Reich debt administration. The secrecy was thus maintained.
literature
- Statistical Handbook of Germany , 1949.
- Rudolf Stucken: German Monetary and Credit Policy 1914-1953 . Tübingen: Mohr, 1953.
- Wilhelm Grotkopp : The great crisis . Düsseldorf: Econ, 1954.
Individual evidence
- ↑ International Military Tribunal Nuremberg : The Trial of the Major War Criminals . Nuremberg 1947, Volume 36, p. 492. Document EC-419
- ↑ Werner Abelshauser: War economy and economic miracle. Germany's economic mobilization for the Second World War and the consequences for the post-war period , Vierteljahrshefte für Zeitgeschichte, Volume 47 (1999), p. 517 ( PDF ).