Bills of Credit
Encyclopedia
Bill of credit is a phrase from Article One, Section 10, Clause One
of the United States Constitution
. It refers to a document similar to a banknote
that is issued by a government and designed to circulate
as money
. Because the framers of the Constitution sought to limit the issuance of currency, it explicitly prohibits the states from issuing bills of credit. British colonies in North America would issue bills of credit in order to deal with financial crises, although doing so repeatedly would result in inflation
. The documents would circulate as if they were currency, and colonial governments would accept them as payment for debts like taxes. They were not always considered legal tender
for private debts.
Contract Clause
The Contract Clause appears in the United States Constitution, Article I, section 10, clause 1. It states:The Contract Clause prohibits states from enacting any law that retroactively impairs contract rights...
of the United States Constitution
United States Constitution
The Constitution of the United States is the supreme law of the United States of America. It is the framework for the organization of the United States government and for the relationship of the federal government with the states, citizens, and all people within the United States.The first three...
. It refers to a document similar to a banknote
Banknote
A banknote is a kind of negotiable instrument, a promissory note made by a bank payable to the bearer on demand, used as money, and in many jurisdictions is legal tender. In addition to coins, banknotes make up the cash or bearer forms of all modern fiat money...
that is issued by a government and designed to circulate
Circulation (currency)
The social system in which we live has usually developed to the stage for money to be used as the medium for the exchange of goods and services. Hence the money is an important aspect of the general social or macroeconomics system...
as money
Money
Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally in the past,...
. Because the framers of the Constitution sought to limit the issuance of currency, it explicitly prohibits the states from issuing bills of credit. British colonies in North America would issue bills of credit in order to deal with financial crises, although doing so repeatedly would result in inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
. The documents would circulate as if they were currency, and colonial governments would accept them as payment for debts like taxes. They were not always considered legal tender
Legal tender
Legal tender is a medium of payment allowed by law or recognized by a legal system to be valid for meeting a financial obligation. Paper currency is a common form of legal tender in many countries....
for private debts.