Are California's IOUs Unconstitutional?

In case you haven't heard, California can't pay its bills, so it's gone about issuing IOUs, or "Warrants" to Creditors it can't afford to pay just yet (if ever). They'd like us to believe that they're just as good as money. But if they're just as good as money, that may be problematic.

According to Article I, Section 10 of the Constitution:

"No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility."

The two phrases of concern are "coin Money" and emit "Bills of Credit." Now, the definition of money is complex and subject to great wonkiness to those of far greater pedigree than I. But, to move this post along, the main definitions according to economists (as understood by me) are "a store of value" and "a medium of exchange."

Well, the California legislature certainly wants the former to apply to its IOUs, and its recipients are hoping for the latter. Check and check.

What do courts think? I haven't found any recent cases on the subject, but I found some old ones. According to a series of cases from the 19th century, the standard appears to be whether, "the paper [is] issued by a state, upon its faith, designed to circulate as money, and to be received and used as such in the ordinary business of life." Darrington v. Bank of Alabama, 54 U.S. 13 (1851).

I would argue that California's IOUs don't violate this standard . . . yet. While there's some folks on eBay looking to arb these bad boys, you probably can't use them to buy Wheaties or a new stereo at your local Walmart, in California or anywhere else. So, they're not yet, "used as such in the ordinary business of life." But if California continued to issue them, and they became more widespread, or even developed their own exchange rate, I think you could make a solid argument that they were unconstitutional.

In sum, if this is a one-time, stop-gap measure, I think anyone looking to take their case to the Supremes would be disappointed by the result. But the longer it goes on, and the more they're used by the Californians as a convenient substitute for actual cash, the closer these IOUs would come to a Constitutional crossroads.