California is printing up $3.2 billion worth of “IOUs” to send to vendors and to people expecting cash payments from the state, including taxpayers due rebates for overpayment. Is this legal?

The U.S. Constitution says that “No State shall … coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts.”

California’s issuing IOUs seems to come close to issuing currency, especially since the state has convinced Bank of America and Wells Fargo to accept the IOUs from customers as deposits. Is issuing currency the same as coining money?

If California is not issuing currency, it could be issuing securities — forcing taxpayers who accidentaly forked over too much money last year to become involuntary creditors. The IOU securities even carry a 3.75 percent interest rate.

But issuers of securities — especially to the public — must follow very strict rules, disclusing pertinent facts about the risks that the securities carry, for example.

The people who then sell the securities on the public markets — brokers and investment managers — must assess these risks, at least in a cursory manner, to determine whether the securities are suitable for a particular client.

As California Gov. Arnold Schwarzenegger said, “We don’t have the money to pay our bills. It’s a sad story.”

It would seem, then, that the securities that California is issuing carry real risk — and are not suitable investments, to say the least, for lots of people on whom the state is forcing them, including smaller taxpayers.

Is California violating securities law?

Other questions:

Where do the securities fall in the credit structure of California’s liabilities? If California cannot make good on the IOUs when they expire — in October — how does this affect California’s bondholders? Could IOU creditors help force California into bankruptcy?

FW has put this question to several people today, but the general answer was “I don’t know.” If anyone knows something, please write …