Compose a 500 words assignment on week six question. Needs to be plagiarism free!

Compose a 500 words assignment on week six question. Needs to be plagiarism free! The constitution of United s of America does not provide any direct reference to paper money or fiat money. Though references are being made to coin money however, there is one indirect reference in Article 1 Section 10 where it prohibited States to emit Bills of Credit. It is therefore suggested that at that time, Constitution was actually referring paper money as the bills of credit rather than mentioning the same in its traditional sense. It is therefore largely believed that the American Constitution is relatively silent on this issue and also explicitly prohibited States to issue such currency notes in paper. (Watkins, 2004)

One of the key reasons as to why founding fathers of America refused to consider paper money as a legal tender was the unrestrained use and possession of this money thus causing damage to the society. Since paper money was not backed by the real physical assets therefore its issuance and circulation was considered as morally damaging for the society as a whole. Apart from this, the issuance of paper money by some States has created widespread inflationary pressures on the economy. The case of Rhodes Island is considered as an ideal case wherein Rhodes Island not only issued the currency but also passed legislation that if anyone refuses to accept this as a legal tender, he or she may be fined for $100. The uncontrolled use of paper money also became detrimental for the trade in Rhodes Island. This experiment created a widespread dissent among those responsible for development of a unanimously agreed constitution of the country. (Newcomer, 1986)

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It is important to note that the US Constitution only prohibits States from issuing paper money but it is relatively silent on the powers of the federal government to issue fiat money. It is however, critical to note that US has started to issue paper money much before even the constitution was adapted in the country. The necessary and proper clause in the constitution also gave powers to the federal government to actually pass any law which may be considered as necessary. (Feeley & Rubin, 2008). The constitutional convention also gave silent powers to the federal government to actually issue paper money but it suggested restraining from inserting an explicit clause in the constitution to allow the issuance of paper money in the country.

The current system of issuing currency notes in the country therefore also points out to this constitutional issue as US Mint is responsible for issuance of coins in limited numbers where Fed has been mandated with the issuance of paper money. Fed does not come under the US Treasury Department whereas US Mint works under the US Treasury.

It therefore can be argued that though US Constitution is silent on the issue of paper currency while it explicitly prohibits States from doing so. It is believed that at the time of adapting constitution, it was deliberately contemplated that a silent power may be given to Congress to issue paper money as it was already in circulation in different States.


(Jr.), Watkins. J. (2004). Reclaiming the American Revolution:the Kentucky and Virginia Resolutions and their legacy. New York: Palgrave Macmillan.

Feeley, M., & Rubin, E. (2008). Federalism: political identity and tragic compromise. Michigan: University of Michigan Press.

Newcomer, P. W. (1986, December). The Illegality of Legal Tender. Retrieved September 27, 2011, from The Freeman: http://www.thefreemanonline.

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