Bill of Credit
BILL OF CREDIT
A bill of credit is a promissory note issued by a government on its own credit and intended to circulate as money. Under Article I, section 10, of the Constitution the states are prohibited from emitting bills of credit. The prohibition was regarded as essential by the Framers of the Constitution, and it was included without significant debate or dissent by the constitutional convention of 1787.
Bills of credit are, in fact, unsecured paper currency. Both alexander hamilton and james madison, referring to the prohibition in the federalist (#44 and #80), wrote of a prohibition on "paper money." In the years immediately preceding the adoption of the Constitution, many states had issued unsecured currency in a deliberately inflationary policy intended to benefit borrowers. As long as local politicians had the power to stimulate inflation, there could be no stable economy. The "more perfect union" required that money have essentially the same purchasing power in every state and region.
The marshall court, in craig v. missouri (1830), held that a state issue of certificates acceptable for tax payments violated the prohibition on bills of credit, since they were "paper intended to circulate through the community for its ordinary purposes, as money." But the taney court held that notes issued by a state-chartered bank—of which the state was the sole stockholder—did not violate the prohibition, since they were not issued "on the faith of the state."
(See briscoe v. bank of kentucky.)
Dennis J. Mahoney