What Currency System Was Used in Colonial Times?
Many different things were used as currency in the American colonies, although monetary value was often expressed using British denominations. Great Britain outlawed the minting of any official colonial coins, and there wasn't enough British money in America to cover the value of goods and services colonists needed to purchase items. Assigning British units to diverse currencies allowed colonial merchants to keep consistent accounting records.
1 Shillings and Pence
Anything used as money in the colonies was counted or measured using the British system of pounds, shillings and pence. The system developed in the Middle Ages, with a pound meaning a literal pound of sterling silver. Twenty shillings made up one pound, and 12 pence made one shilling. Since most colonists were British, this system made sense to them. However, the colonies had problems because the values assigned to different things used as currency varied highly from one colony to another, making prices unpredictable.
2 Wampum and the Art of Barter
Wampum, a Native American monetary system that placed value on particular sea shells, was one of the first forms of currency used extensively by many colonists. Colonists began using wampum in 1627, and by 1637 it had become legal tender in Massachusetts for paying government fines and taxes. This ended in 1661, due to the fragile nature and inconsistent quality of the shells themselves. Colonists also engaged in barter; however, sometimes colonists needed to purchase basic goods such as corn and didn't have anything to trade. In those situations, commodities were used as a form of currency. Certain products, such as tobacco or animal skins, became known as "rated commodities" with a standard value expressed in British pounds. That value only applied to the particular colony, however, and different colonies varied in the price they put on these goods.
3 Two Bits, Four Bits
While coinage was scarce in the American colonies, the colonists still preferred using gold and silver as currency over other forms because it had more universal value. Since the colonies traded frequently with the Spanish West Indies, the Spanish dollar became a common coin used in the colonies. Known as "pieces of eight," these coins in effect became the unofficial national currency of the colonies in the 17th and 18th centuries, and circulated as a legal tender until 1857. A Spanish piece-of-eight could be broken into eight reals, or "bits," to make change. The common expression "two bits," meaning a quarter of a dollar, comes from this colonial practice.
4 The Quest for Colonial Coinage
Great Britain forbade the colonists from minting their own coins. In 1652, the Massachusetts colony challenged this ban by creating an illegal mint and pressing coins. The first attempt, a basic design that proved easy to counterfeit, was abandoned after four months. The second was a series of silver coins known as "Pine Tree Shillings." These coins were all dated 1652, so if the British ever discovered the illegal coins, the colonists could claim the mint had been shut down and the coins had only been made during that year. However, Massachusetts actually produced many series of Pine Tree shillings until 1684, when the king revoked the Massachusetts charter and the mint was closed.