Diving into colonial and early American coinage requires us to look back several decades prior to the 17th century and the beginning of permanent North American colonization. If we are developing a timeline of sorts, it would be worthy to mention that it truly began in the late 15th century. What event comes to mind? The exploration of one Christopher Columbus and his arrival in the Bahamas in 1492, thus the proverbial doors were opened, and the flood of Europeans lay claim to the Americas.
Another notable settlement to mention before we wander down the path of money in early America occurred during the 16th century, around 73 years after Columbus' expedition. A more permanent "landing" took place in what is now known as St. Augustine, Florida, by the Spanish. Admiral Menédez led the charge as his ships made landfall and San Agustín was established. The purpose? A military base to protect Spanish fleets and their treasure and oppose their French rivals nearby.
Fast forwarding into the early 17th century now, we look at North America and the founding of its first settlement in Jamestown, Virginia. As the settlements continued to grow following its foundation, along came an increased demand for coins. They were scarce, leading to the exchange agent including commodities and goods.
States like Maryland and Virginia were using gunpowder, shot, and tobacco while other colonies were using grain (corn, peas, and wheat), fish, cattle, furs, and oatmeal in payment of debts. New Hampshire offered their dried and salted fish, lumber, and other ag-related products while the Carolinas were using tobacco, grain, rice, and pine tar. Beaver skins were popular up north in New York, and even Indian Wampum (shell money) were being used in exchange. All these goods had one major thing in common: they could be utilized and therefore could not saturate (or flood) the market. They required effort to produce, making their exchange worthiness justifiable. However, some of those goods were overproduced, depreciating their value and creating another set of issues over time.
As the establishment of the United States Mint did not occur until 1792 in Philadelphia, money used in the American colonies were made from several metals, most of which were foreign coins. Many different European countries contributed to this fact. Copper coins, generally used for small change, were from Britain. Silver and gold coins generally used for larger purchases came from Spanish-American mints located in Mexico, Chile, and Peru. Brazil, Bolivia, Spain, and Ireland were also included in the list of countries contributing to the influx of European coinage in America.
Even after the Philadelphia Mint was created and several of the Mint branches were in operation, most of the silver coins still circulating in the colonies were the Spanish-American types, namely the 8-real. In major cities like Boston, Philadelphia, and New York, silver 2-real coins were more common in the 1850's than the Liberty seated (1837-1891) coins that were in production. It was not until the Act of February 21, 1857, that foreign gold and silver coins were no longer acknowledged as legal tender. They remained in commercial use well into 1859 after a two-year extension was granted and additionally another six months.
The colonies not having any coins of their own was just one issue among them. Due to their dealings with England as the mother country being separate, or individual, they did not have much contact with each other. This, in turn, led to each colony's monetary exchange rate differing based on diverse economic determinants. Bookkeeping systems balanced their accounts within their colony based on local legislation. This was often referred to as "money of account." The money of account in every English colony used the same monetary units they used in England, namely pounds, shillings, and pence. However, the money of account in individual colonies would differ as the exchange rate would factor in. For example, leaving England, a Spanish 8-real would be quoted as worth 54d (pence). In Virginia, it would be worth 72d while in Maryland, Delaware, Pennsylvania, and New York it would be quoted as 96d.
After some time, paper currency was eventually introduced. Colonies started producing their own, with the earliest coming out of Massachusetts in December of 1690. During the 18th century, paper money had started to be issued in larger amounts. However, with the currency came public skepticism largely due to counterfeiting. It was a plague as notes that were good in one area were no longer good in another. Not many individuals could tell the difference between a genuine note and a fake, something even numismatists today struggle with.
Another issue with paper money was how much it was devalued. The amount needed to purchase anything became greater over time. This was a problem within each colony, so the idea that traveling to another intending to use that same money became impossible. The money would instantly decrease in value. The answer to this problem across the board? Continental Currency, or so, they thought.
Authorized by the Continental Congress in 1775 and issued in five series from fractions of a dollar to $80, the bills depreciated quickly as many seemed to forget that the federal treasury was empty. By 1781, the bills were deemed useless. In August of 1790, Congress passed an act that Continental Currency would receive the bills until September 1, 1791, but only at the rate of $100 bills to $1 in silver or gold coins.
With the disaster that was concerning the series, it led the way to bank notes. The Commonwealth of Pennsylvania authorized the charter of the Bank of North America, which was the first institution of its kind accredited by a state. Banks issued notes with their individual imprints that were now redeemable in gold and silver coins at their specific office. Over 2,000 banks took off within the colonies up through the 1860s when the federal government once again issued currency for public consumption. After that, paper currency was looked at as common, especially during a time when coins were being hoarded, and it was all they could use. This changed the entire dynamic of coins versus bills as the tide shifted past the colonial era into the 19th century.
Source: Colonial and Early American Coins (2nd Edition) by Q. David Bowers