It is within the general scope of legislative power to provide for the borrowing of money for the public use, which is usually done either by the issuance of bonds bearing interest, which may be sold for money, or by issuing warrants, treasury notes, or other evidences of indebtedness which may be used as money or by way of substitutes for money. Warrants are mere evidences of debt and are not intended for circulation, so that they need not be further considered. Treasury notes, or like instruments in the form of due-bills, by which the government promises to pay the amount specified on the face of the bill or note, are usually intended, however, to pass from hand to hand as currency and to constitute a part of the circulating medium of the country. The states may exercise the power of borrowing money in any of these ways except as forbidden by the provisions of the federal constitution. There is nothing in the constitution to prevent their borrowing money by means of the sale of bonds, nor to prohibit them from issuing warrants as mere evidences of indebtedness; but they are specifically prohibited from emitting bills of credit (Art. I, § 10, ¶ I), and this prohibition puts it beyond the power of the state to issue due-bills, or paper of any kind intended to pass from hand to hand as or as a substitute for money; that is, a state cannot, even for the purpose of borrowing money, exercise the sovereign power of emitting paper currency (Craig v. Missouri). But this prohibition does not interfere with the power of a state to authorize banks to issue bank notes in the form of due-bills or of similar character, intended to pass as currency on the faith and credit of the bank itself, and not of the state which authorizes their issuance.
The business of banking is a form of business which the state may regulate and it may authorize the creation of corporations to engage in such business. In the case of Briscoe v. Bank of Kentucky it was held that even though the state itself is a stockholder in the bank, the notes issued by the bank and in its own name are not bills of credit of the state. It is entirely possible, therefore, and it was at one time the practice for states to charter banks with authority to issue currency under regulations and restrictions imposed by law. Such currency might properly be called state currency as distinguished from national currency, being issued under authority of the state. However, as will appear in the next section, Congress has also authority to provide currency for the country, and, in the exercise of this sovereign power it may impose restrictions on the exercise of a like power on the part of the states. In the exercise of this sovereign power, Congress has imposed a tax of ten per cent on the currency issued under the authority of a state, and this tax is, as it was intended to be, so severe a burden on the emitting of bills by banks chartered under state authority that state bank currency has wholly gone out of use and been supplanted by currency provided for by the federal government. Such a tax has been held valid in Veazie Bank v. Fenno.
By the section of the federal constitution last above referred to, states are also prohibited from coining money or making anything but gold and silver coin a tender in payment of debts; and it results, that neither coin nor paper money can be emitted by a state, and that practically the entire power of providing for and regulating the making and issuance of money rests with the federal government.