There is a distinction between the coining of money and the emission of bills of credit. Coin derives its value from the metal of which it is made, but a bill of credit it derives its value entirely from faith in the government of the United States. The fact that the Framers distinguished between coin and bills of credit is quite clear from the text alone. Article I, Section 10, Clause 1 provides, "No State shall ... coin Money [or] emit Bills of Credit."
Fiat money, or paper money, is an example of a bill of credit. The clause quoted in the preceding paragraph originally prohibited states from coining money, but not from emitting bills of credit. However, Roger Sherman made a motion to prevent the states from emitting bills of credit as well. Sherman remarked that the moment was opportune "for crushing paper money." Nathaniel Ghorum opposed the motion because "an absolute prohibition of paper money would rouse the most desperate opposition from its partizans." It is clear from these statements (as well as several others) that the Framers considered paper money a type of bill of credit, as distinguished from coin.
The Constitution explicitly forbids the states to emit bills of credit. It does not prohibit Congress from emitting such bills, but it does not authorize Congress to do so either.
In fact, the original draft of the Constitution included the power to emit bills of credit. According to James Madison's Notes, John Langdon would "rather reject the whole plan [of the Constitution] than retain the three words ('and emit bills')." George Read thought that "the words, if not struck out, would be as alarming as the mark of the Beast in Revelations." It follows, therefore, that Congress does not have the power to emit bills of credit even by virtue of the necessary and proper clause.
In the absence of a general power to emit bills of credit, fiat money is unconstitutional. As Daniel Webster once said, "As Congress has no power granted to it in this respect but to coin money and to regulate the value of foreign coins, it clearly has no power to substitute paper or anything else for coin as a [legal] tender."
But Congress (or the US government for that matter) does not emit any bills of credit. A bunch of private corporations (regional Feds) do. Does the Constitution prohibit private corporations from issuing bills of credit? As long as the people have trust in that corporation, of course. So, the correct question is if the Congress can regulate the issuance of bills of credit by private banks.
In any case, this is just one example of how the meanings originally attached to terms change. As the development of modern economy has shown, it is not even true that the "value of species money" necessarily derives from the worth of the metal any more than the value of a piece of, toilet or Fed, paper derives from the worth of that paper: once gold has been demonetized, much of its "value" disappeared. True, gold has non-monetary uses - it can be used for your wedding band. But so does paper: you can use it as wallpaper, or as fuel to heat your home. The "value" of anything comes from interaction of supply and demand, and if you remove the monetary demand, here goes the value. All you need for something to be "good money" is portability and reliable control over the supply. If you could establish control over the supply of toilet paper, we might have used that as money.
It is not unlikely, that the whole issue will become mute once over in the next 50-100 years with the practical disappearance of physical cash. What is the constitutional view of control over the supply of something that really matters, say, M2?
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