With budget negotiations stalled, a cash crisis looming and its fiscal crisis deepening, California today will begin issuing IOUs - formally called registered warrants - to tens of thousands of businesses and individuals to whom the state owes money.
Now to the point of this blog article. The U.S. Constitution Article I, Section 10 states as follows:
Section 10. No state shall enter into any treaty, alliance, or confederation; grant letters of marque and reprisal; coin money; emit bills of credit; make anything but gold and silver coin a tender in payment of debts; pass any bill of attainder, ex post facto law, or law impairing the obligation of contracts, or grant any title of nobility.
I will research this topic the next time I am at the law library, because I need to know what it specifically means by "emit bills of credit." A quick internet search reveals that it has been interpreted to mean the States cannot issue their own paper currency. However unless a Court has ruled directly on the matter, these I.O.U.s could be alleged to be a bill of credit emitted by the State of California.
Are these I.O.U.s considered paper currency or "bills of credit," because if so, then that means the State of California will be violating the U.S. Constitution? I would argue that I.O.U.s are bills of credit at a minimum. It will be interesting to see if anyone pursues an action against the State of California for these I.O.U.s.
Source: Yahoo; The Web of Debt