Mefo bills

A Mefo bill (sometimes written as MEFO bill), named after the company Metallurgische Forschungsgesellschaft (Metallurgical Research Corporation), was a promissory note used for a system of deferred payment to finance the German rearmament, devised as a legal fraud by the German Central Bank President, Hjalmar Schacht, in 1934.

Mefo bills followed the scheme for which the Öffa bills were the blueprint.

As Germany was rearming against the terms of the Treaty of Versailles they needed a way to fund rearming without leaving a paper trail; Schacht created this system as a temporary method to fund rearming with only one million Reichsmarks in capital. Schacht has later said that the device "enabled the Reichsbank to lend by a subterfuge to the Government what it normally or legally could not do".

The German government needed to spend a large amount of money to fund the depression era reconstruction of its heavy industry based economy, and ultimately its re-armament industry. 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. Additionally, a large, visible government deficit would have attracted attention.

Hjalmar Schacht 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.

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