Bill of Credit Law and Legal Definition

Within the constitution of the United States, Bill of Credit refers to a paper issued by a State, on the mere faith and credit of the State, and designed to circulate as money. Art. I, Sec. X of the Constitution, dealing with the limitations imposed on States says that “No State shall …emit bills of credit.” States may not exercise some powers reserved for the federal government and this includes issuance of bills of credit. Such bills of credit are declared to mean promissory notes or bills issued exclusively on the credit of the state, and for the payment of which the faith of the state only is pledged. The prohibition, therefore, does not apply to the notes of a state bank

Among merchants, it refers to a letter sent by an agent or other person to a merchant, desiring him/her to give credit to the bearer for goods or money. It could also refer to a written notice given by a bank to a customer that authorizes another bank to give him/her credit based on security promised by the primary bank.