Transactions
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.
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