Based on original intent Federal Reserve Notes (FRNs) are, clearly, unconstitutional. Those who claim FRNs are constitutional based on implied powers must, nonetheless, predicate those implied powers on expressed powers. No such predication appears possible.
The Articles of Confederation and early drafts of the Constitution expressly empowered the central government to coin money, to borrow money, and to emit bills of credit (i.e., issue paper money, ultimately, but not immediately, redeemable in gold or silver). The last of these empowerments was omitted from the final draft. The states, however, were expressly denied the right to emit bills of credit. Here, then, are the only two clauses in the Constitution that potentially could provide the basis for a claim that FRNs are constitutional :
Article 1, Section 8, Clause 5: “To coin money, regulate the Value thereof, and of foreign coin, and fix the Standard of Weights and Measures;
Article 1, Section 8, Clause 2: “To borrow money on the credit of the United States;
Clause 5 empowers Congress to coin money and to regulate its value. The Coinage Act of 1792 established the silver dollar standard. It defined a dollar as 412.5 grains of silver, 90% fine (i.e. 371.25 grains of pure silver). That Act has never been repealed or revised. In 1849 a gold dollar was defined and in 1873 and, again, in 1900 gold was statutorily established as the standard based on then existing respective market values of gold and silver and the initial defined standard.
The Federal Reserve Act of 1913 authorized the issuance of FRNs, “redeemable in lawful money.” Clearly, therefore, the statute did not consider FRNs lawful money. According to statute and case law, lawful money is silver, gold, silver certificates, gold certificates, and U.S Treasury demand notes. FRNs were initially redeemable in lawful money, but since 1933, they have expressly not been redeemable in gold or silver by U.S. citizens. Initially, the holder of a $1 FRN could redeem it at the U.S. Treasury for 1/20.67th of an ounce of gold. In 1934, FDR debased the FRN to 1/35th of an ounce; in 1972, the FRN was further debased to 1/38th of an ounce, and, in 1973 it was further debased to 1/42.22th of an ounce. In 1978, the 1973 Act was repealed and for the first time, the primary currency of the United States bore no relationship to the statutorily defined silver dollar of the Coinage Act of 1792.
Case law holds that Congress has no statutory power to declare any currency to be a legal tender if it deprives the recipient of purchasing power relative to statutory standards. In the light of the above-described debasements, then, FRNs cannot even properly serve as a legal tender, let alone lawful money. While FRNs are statutorily declared as “obligations” of the U.S. Government, neither the nature of the obligation nor the means of enforcing that obligation is sufficiently specified. FRNs, then, are not coins, not lawful money, not redeemable in lawful money, and are, statutorily, denied the status of legal tender.
FRNs also cannot be accorded constitutional status based on the power granted to Congress “to borrow money.” The power to borrow is different from the power to emit certificates of indebtedness, which circulate as media of exchange by force of government. The “argument” for constitutionality, then, boils down to: FRNs are constitutional because they are emitted by a structure that Congress has created and which are necessary and proper for that structure to fulfill its function. But is Congress, indeed, constitutionally permitted to create the structure of the FRS for the purposes it fulfills and does the necessary and proper clause supports its issuance of FRNs in that process.
The powers purportedly delegated to the FRS are illegal, first and foremost, because they delegate powers that the Congress does not, itself, have. Even if it had such powers, however, the grant of power is so broad that it constitutes an abdication of a power purportedly “vested” in Congress. While Congress has the rightful power to emit redeemable bills, such bills are a far cry from unredeemable emissions of a private issuer. Vested powers may not just be given away and to the extent that some aspects of the power are delegated they must be sufficiently well defined to allow appropriate monitoring.
The Constitution clearly placed both the power to coin money and the power to borrow money with the Legislative Branch even though such powers had, historically, been Executive powers in English common law. Delegation of these power to an executive agency flies in the face of the framer’s intent. Delegation of these powers to a private party is, clearly, unconstitutional.