Towns Creating Their Own Currency May Violate The Constitution

It’s no secret that times are tough.  Everyone’s hurting for money and people are always looking for ways to cut corners, while also earning some more dough.  Apparently, some towns have figured out a much better and faster shortcut to solve their community’s cash woes: print their own money.

Alright, you got me, my lead-in paragraph was a little deceptive.  It’s not really a complete contravening of the federal currency system (but in some cases, it’s pretty darn close).

Regardless, it’s an interesting trend to say least.  Small towns across the country from Massachusetts to New York to Oregon have started printing out their own version of currency to be used within their community.  One might be thinking: what would be the point seeing as we already have a national currency that works fine right now (other than the constant inflation, of course).

It’s not as pointless of an exercise as it might initially seem to be.  These local currencies generally hold a higher exchange rate than regular old US dollars in their respective communities.  For example, in Southern Berkshire, Mass., that town’s created currency, dubbed BerkShares, trades at 100 BerkShares to $95.  The little bit of extra money can go a long way in these hard times of ours.  And so far in the communities that have started currency programs like it, spending has gone up within these respective towns injecting some much needed money into their local economies, while also allowing residents to get a little more bang for their buck.

Now it’s always nice to hear when financially struggling people, or in this case a town, figure out a way to help dig themselves out of the red.  However, since this is a law blog, you’ve probably already deduced that I’m likely about to say something to ruin the party.

And you’d be right.  Because as far as I can tell, I’m pretty sure what some of these towns are doing may very well be in direct opposition to the Article I, section 10, clause 1 (aka the Contract Clause) of the U.S. Constitution, which states in relevant part that “No State Shall . . . coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts . . .”  The Contract Clause basically makes it unconstitutional for states to make their own currency, as the power to coin money is one that is reserved for the federal government.

Yeah, I know, I’m a party pooper.  But before you guys start tossing your hate mail at me, let me reiterate that these currency programs only might be unconstitutional.

The link I put up shows ten towns that have enacted their own form of currency.  Of the ten, nine of them seem to be perfectly constitutional because their currency acts more like a bartering or discount services program, ala a Groupon or Living Social deal, rather than a usurping of congressional power.  These nine currency programs were started privately by individuals or organizations who worked out deals with local business to accept their currency which in turn was “exchanged” or rather purchased by locals using actual dollars.  In this sense, these nine currencies are more akin to privately sold coupons than actual money since there are fewer places that actually accept them and treat them like money.

The main issue I have is with Southern Berkshire’s BerkShares, as that one seems to be closest to functioning as actual money.  Over 13 banks in their town accept and deal in it; these banks charge a percentage fee to exchange them, over 400 businesses in town accept them and there have been over 3 million BerkShares issued since the currency was launched in 2006.

However, the most important characteristics that set BerkShares apart from other local currency is that it appears to be endorsed by the local town’s government body and it also is more valuable than U.S. dollars in the community since $95 will get you 100 Berkshares.  These two characteristics of government authorization and devaluation of US currency have been viewed by the courts to be essential to the determination of an illegal currency.

Now it might not seem like a big deal if a town wants to create its own money, but it really is.  The reason is because the creation of unauthorized currency can cause financial instability in the country.  For instance, if a state is independently wealthy using its own money, it would have less incentive to adhere to federal guidelines.  It would in a sense become its own true sovereignty, and while states do have this right to some extent under the Constitution’s state police powers, allowing a state to print its own currency is a step too close to succession.

For now it doesn’t seem like too big of a deal to the federal government as no one other than me appears to have noticed this possibly unconstitutional action over in Southern Berkshire.  It’s helping their community and so far hasn’t led to any declarations of independence, so I guess more power to them.