Wyoming apparently plans to issue its own state-backed stablecoin, a decision that raises unique constitutional issues that haven’t been explored for many years.
Since our nation’s Founding, few states have tried to mint their own currency—which makes sense, given the U.S. Constitution’s prohibition against doing just that.
Article I, Section 10 of the Constitution says that “No State shall … coin Money; emit Bills of Credit; [or] make any Thing but gold and silver Coin a Tender in Payment of Debts.”
To be fair, Wyoming recognizes the potential peril of its plan and seeks to avoid running afoul of the Constitution by carefully picking the nomenclature it uses to refer to its stablecoin—as if referring to it as a “token” instead of a “coin” could be enough.
In 1837, Supreme Court Justice Joseph Story, one of our nation’s leading constitutional lights, had something to say about this, though in the slightly different context of determining whether a financial instrument issued by a state qualified as a prohibited bill of credit. In that context, he said that the “Constitution does not prohibit the emission of all bills of credit, but only the emission of bills of credit by a state: and when I say, by a state, I mean by or in behalf of a state, in whatever form issued.”
Story lost the argument about whether notes issued by state-owned banks would fall under the Constitution’s prohibition. The majority said that they did not. But his point reflects a similar one made earlier by Chief Justice John Marshall when Missouri issued bill-of-credit-like instruments that it called “certificates.”
Marshall said that had these “been termed ‘bills of credit,’ instead of ‘certificates,’ nothing would have been wanting to bring them within the prohibitory words of the constitution.” Moreover, he continued, “can this [different nomenclature] make any real difference? Is the proposition to be maintained, that the constitution meant to prohibit names and not things? … We cannot think so.”
So, by creating and issuing Wyoming Stable Tokens, could Wyoming be engaging in the constitutionally prohibited activities of “coin[ing] Money” or “emit[ting] Bills of Credit”?
Maybe.
As threshold matters, a few points are in order:
First, some originalist scholarship suggests that the act of “coin[ing] Money,” as used in the Constitution, may have a broader meaning than simply striking and issuing metallic coins. This discussion has largely taken place while examining the Constitution’s explicit grant of power to Congress “To coin Money.” But it’s a well-known canon of constitutional construction that the same words or phrases used in different places in the same document have the same meaning unless context makes clear a different meaning applies.
Second, the question remains as to what qualifies as emitting a bill of credit. Marshall said in 1830 that “To ‘emit bills of credit,’ conveys to the mind the idea of issuing paper intended to circulate through the community for its ordinary purposes, as money, which paper is redeemable at a future day. This is the sense in which the terms have always been understood.”
Essentially, it’s a form of a promissory note that served as a circulating currency and functionally acted like money or a money-substitute.
And, according to Marshall, “If the prohibition means anything, if the words are not empty sounds, it must comprehend the emission of any paper medium, by a state government, for the purpose of common circulation.” If they “were to be put into circulation,” then they were “emitted by the government.”
This sounds strikingly similar to Wyoming’s plan for its Wyoming Stable Token.
The Framers of our Constitution didn’t have digital payment systems and likely couldn’t have imagined the blockchain technology currently in existence. But, as in other areas (think especially in the Fourth Amendment context), the Constitution’s text, as informed by the public’s understanding of it as exhibited by our nation’s historical practices around the time of its adoption, can be applied to modern practices and phenomena.
Even so, Wyoming could avoid all of these potential problems by taking a simple step: Create another entity—even one wholly owned and controlled by the state—to issue the Wyoming Stable Token.
Without reevaluating existing Supreme Court precedent in this area, it provides that a privately held entity like a bank—even one wholly owned and controlled by a state—can issue bank notes, which, though virtually nonexistent today, looked and practically functioned much like the prohibited bills of credit (though there were some conceptual differences between the two). And the same logic would seem to apply to the issuance of stablecoins.
Yet an even more interesting question might be presented if a state proposed to issue a stablecoin backed not by the U.S. dollar (as Wyoming plans to do) but backed instead by gold, silver, or some combination of the two.
After all, the Constitution gives states the option to make “gold and silver Coin a Tender in Payment of Debts.” And some states, such as Florida, that have taken advantage of that permission (or lack of prohibition) have emphasized that purely electronic transfers of gold or silver coins fall within their purview as much as physical transfers do. Maybe that’s why Texas recently proposed a gold-backed stablecoin.
But even setting aside the legal and constitutional issues surrounding state-issued stablecoins, the question remains as to whether they are a good idea. Rep. Tom Emmer, R-Minn., a leading opponent at the federal level of a Central Bank Digital Currency, has vocally criticized Wyoming’s effort as nothing more than a state-level initiative to create the same—along with all the privacy and control concerns that come with it.
Wyoming plans to launch its Stable Token as soon as July—meaning these concerns are quickly becoming more than merely theoretical. And they deserve a much closer examination than they have been given so far.