Eleanor Finch
The US Constitution grants Congress the power to coin Money, regulate the Value thereof, and of foreign Coin. This includes the authority to maintain coinage as a medium of exchange and prevent its diversion to other uses. The Constitution also prohibits states from coining money and issuing bills of credit, with only gold and silver coins permitted as legal tender. The term 'fiat money' refers to currency with legal tender status that is not backed by any commodity. While the Constitution does not explicitly address paper money, it has been interpreted to allow Congress to issue it. The value of the dollar is fixed in the Constitution, with any changes requiring a constitutional amendment.
| Characteristics | Values |
|---|---|
| Definition of a dollar | A silver coin containing 371.25 grains of pure silver |
| Dollar value | Fixed |
| Power to regulate the value of money | Congress |
| Issuing of paper money | Only private institutions can print paper money |
| Legal tender | Gold and silver coins, and notes freely redeemable in and fully backed by such coins |
| Power to borrow money | Congress |
| Power to coin money | Congress |
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What You'll Learn
Congress's power to coin money
The US Constitution grants Congress the power to coin money and regulate the value of both domestic and foreign coins. This power is enshrined in Article I, Section 8, Clause 5 of the Constitution, which states:
> "The Congress shall have Power [...] To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures."
This power was granted to Congress to avoid the pitfalls caused by fiat money and power-hungry politicians, which had been a problem during the Revolutionary War. At that time, the Continental Congress issued about $240 million in paper currency, which was supposed to be redeemed in gold or silver by the states after the war. However, the states took this as an opportunity to issue vast quantities of their own paper currency, leading to unsound money and nearly causing the defeat of the struggle for American independence.
The power to coin money also includes the authority to maintain such coinage as a medium of exchange within the country and to forbid its diversion to other uses, such as defacement, melting, or exportation. Additionally, Congress has the power to adjust the Mint exchange rates of foreign specie coins relative to their US equivalents.
It is important to note that the power to regulate the value of money does not allow Congress to redefine the value of the dollar arbitrarily. The value of the dollar is fixed and can only be altered by a constitutional amendment. The term 'power to regulate the value thereof' means the power to adjust the amount of gold in US gold coins to keep both gold and silver money in circulation.
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Congress's power to regulate the value of money
The US Constitution grants Congress the authority to regulate the value of money in the United States. This power is derived from Article I, Section 8, Clause 5, also known as the Coinage Clause, which states that Congress has the power " [to] coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures".
The Supreme Court has interpreted this clause as giving Congress exclusive power over the nation's currency. This includes the authority to mint money, determine its value, and regulate its circulation. Congress can also establish banks and grant them the authority to issue banknotes and coins.
The Constitution also grants Congress the power to regulate the value of foreign coin and currency in relation to US currency. This includes the power to adjust the Mint exchange rates of foreign specie coins relative to their US equivalents.
Furthermore, while Congress has the power to issue fiat money and dictate its value, the value of the dollar is considered fixed and can only be altered by a constitutional amendment.
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The definition of a dollar
The dollar is a unit of currency or money used in the United States, Canada, and Australia. The symbol for a dollar is $. A dollar bill is the equivalent of 100 cents. The word "dollar" is derived from the German "thaler", an early unit of German currency.
The modern dollar is a successor to the Joachimsthaler, a silver coin minted in the early 16th century in the German town of Sankt Joachimstal (now Jáchymov in the Czech Republic). The name "Joachimsthaler" was eventually shortened to "taler" in German, and the word was borrowed into English as "dollar" via the Dutch or Low German "daler".
In the US Constitution, the value of the dollar is fixed and can only be altered by a constitutional amendment. The Constitution also specifies that only gold and silver coins, and notes freely redeemable in and fully backed by such coins, may serve as legal tender in the United States.
The legal definition of a dollar is a silver coin containing 371.25 grains of pure silver. The US Mint continues to make silver $1-denomination coins, but these are not intended for general circulation.
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Fiat money
The US Constitution grants Congress the power to "coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures". This power has been interpreted by the Supreme Court as including the authority to maintain the coinage as a medium of exchange and to forbid its diversion to other uses, as well as the power to regulate every phase of currency, including the creation of banks and the issuance of circulating notes.
The term "fiat money" refers to currency that is not backed by a physical commodity such as gold or silver, but rather by the government that issues it. The value of fiat money is derived from the relationship between supply and demand and the stability of the issuing government. Most modern paper currencies, including the US dollar, are fiat currencies.
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The private sector's role in money creation
The US Constitution does not explicitly mention a central bank or grant the government the power to create one. However, it does outline certain monetary powers, such as the power to borrow money, coin money, regulate its value, and determine the value of foreign currencies. The interpretation and application of these powers have been debated over the years, with critics arguing that the Federal Reserve, established in 1913, is too closely tied to the private sector to be constitutional.
The Federal Reserve, or the Fed, acts as the central bank of the United States, regulating the money supply and interest rates. While it is not privately owned, its structure as a corporation with shares held by commercial banks gives private banks an unusual degree of influence. The Fed's policies have a significant impact on the nation's economy and financial dealings worldwide. Critics argue that this private-public ownership structure gives private corporations too much influence over the banking system and that the appointment process for officials lacks transparency and accountability.
The complexity of the financial system and a lack of public awareness about the costs of private money creation have contributed to the continuation of the current system. Some argue that if citizens fully understood the benefits of public sector money creation, they would demand a transition. Additionally, it has been estimated that private sector money creation costs US taxpayers billions of dollars annually, with citizens essentially paying interest to use their own money.
Proponents of public sector money creation argue that it can provide better inflation control, economic prosperity, credit availability, and monetary value stability. It can also reduce taxes, deficit spending, and national debt while increasing funds for essential public investments. Several countries, including the US, have achieved economic growth without causing inflation by using public sector money creation.
In conclusion, while the US Constitution does not explicitly address the private sector's role in money creation, critics argue that the current system, with the Federal Reserve's ties to the private sector, violates the constitutional principles of democracy and the separation of powers. Transitioning to public sector money creation could potentially provide economic and financial benefits, but it requires public support, transparency, and effective checks and balances to minimize political abuse.
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Frequently asked questions
The US Constitution gives Congress the power "to coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures". This means that Congress can mint money and specify its denomination.
A dollar is defined as a silver coin containing 371.25 grains of pure silver.
The framers of the Constitution would have understood "to coin" to mean "to mint or stamp metals for money", as defined in Samuel Johnson's popular 1755 dictionary.
