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Money in Colonial Times Was Rare to Nonexistent
If he were alive today, Benjamin Franklin would probably be thrilled to watch someone magically withdraw a stack of bills from an automated teller machine. In a written plea to the English Board of Trade in 1764, Franklin argued in favor of paper money in the American colonies. He argued that paper money could greatly benefit colonial economies, which suffered from a shortage of gold and silver coin. British law dictated that it was illegal to manufacture coins within the colonies. The precious supply of coins that did exist was often used by wealthy businessmen for large financial transactions.

Most common commercial transactions were often completed by trade or barter. Colonists also used commodity money, such as tobacco, beaver pelts, grain, and Indian wampum beads. In some colonies, tobacco became lawful money, which resulted in the printing of notes redeemable in tobacco. Tobacco, however, could go bad, and its quality was not always consistent. The disadvantages of tobacco and other forms of commodity money provided the incentive for colonies to issue paper money. Most early issues of paper money failed to gain the public's confidence and eventually became worthless when the Continental Congress issued Continental notes. These notes were backed by the anticipation of future tax revenues, but only if colonies won their independence.

Colonists asserted their independence by choosing the Spanish Real coin rather than the British pound as their unofficial denomination. The Real was renamed the Spanish milled dollar, adopting "dollar" from the German word "Thaler." Also called "pieces of eight," the coin was often divided into eight pieces to make change. Two pieces--or "two bits"--represented a quarter of the coin, a term that was carried into the next century. The Spanish milled dollar was later used as a model for the first American silver dollar.