Fiat Money and the Coinage Clause

[Emsworth]

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."

[Emsworth]

So, the correct question is if the Congress can regulate the issuance of bills of credit by private banks.

There are two separate questions: May Congress regulate the issuance of bills of credit by private banks? May Congress make privately issued bills of credit legal tender?

In both cases, the answer must be in the negative.

[Emsworth]

*sigh* I was just wondering. And I also can, cince I think government issued currency is a terrible idea but still think it's cosntitutional.

Out of curiosity, which enumerated power do you rely on?