Bills of Credit Clause

The Bills of Credit Clause prohibits states from issuing bills of credit, placing state paper currency beyond the powers retained by individual states. Its significance in the argument for the proposed Constitution is both fiscal and constitutional: paper money is presented as a source of damaged confidence and public disorder, while a common monetary restriction protects dealings among states from incompatible currencies and unilateral changes in value.

The prohibition and its constitutional setting

The clause appears among a group of restrictions on state authority. States may not enter treaties or confederations, coin money, make anything other than gold and silver legal tender, or issue bills of credit; the same list also bars bills of attainder, ex post facto laws, impairment of contracts, and titles of nobility. The prohibition thus belongs to a wider effort to prevent state actions that could disrupt shared national interests or undermine private security.

The argument distinguishes the new restriction on paper currency from the Confederation’s existing arrangement. Under the earlier system, Congress held authority over the alloy and value of coin, but states retained a concurrent right to coin. The proposed Constitution removes state coinage, and extends the same logic to paper money: if states cannot establish divergent metallic currencies, they should not be able to substitute paper media that can produce comparable harms.

The case against state paper money

The text describes the consequences of paper money since the peace as a lasting injury to confidence between individuals and confidence in public councils. It also connects the damage to industry, public morals, and the standing of republican government. The injury is framed not merely as a technical currency problem but as a public debt owed by the states responsible for the policy, one that can be answered only by surrendering the power that produced it.

The concern is also prospective. If each state could regulate the value of its own coin, the result might be as many different currencies as states, impeding intercourse among them. States could make retrospective alterations in currency value, harming citizens of other states and kindling animosities. Foreign subjects could suffer the same injury, leaving the Union discredited or embroiled through the indiscretion of a single member. The argument insists that issuing paper money carries no less risk than state coinage, and therefore belongs under the same prohibition.

Relation to revenue and the Union

The broader fiscal argument portrays the Confederation as unable to secure adequate public revenue through state requisitions. Its measures required the concurrence of thirteen sovereign state wills; as states successively failed to comply, the national government was left scarcely able to maintain the forms of administration. The proposed system, by contrast, is said to require a general power of taxation to fund military forces, civil administration, and national debts. The bills-of-credit restriction forms a related but distinct part of this case: it does not itself provide revenue, but prevents states from using monetary powers in ways said to erode confidence and interfere with the Union’s common purposes.

The revenue discussion also emphasizes how weak trade and scarce money hindered direct taxation, while commerce and duties offered a more practicable source of public income. A general Union, the argument maintains, could facilitate commerce and make duty collection simpler and more effective. Against that background, divergent state currencies would threaten the very ease of intercourse on which commercial and fiscal capacity depends.

Constitutional significance

The clause is presented as a constitutional barrier against the return of a policy whose costs spread beyond the state that adopts it. Its rationale links monetary uniformity to interstate relations, public credit, and confidence in republican government. By withdrawing the power to issue bills of credit from each state, the proposed Constitution seeks to prevent local monetary decisions from imposing losses on outsiders and turning the Union’s common standing into the casualty of a single member’s choice.