In all times and places, people have engaged in trade, and the American Colonies during the time of the Revolution are no exception. Although some trade was conducted as barter, particularly for commodities such as tobacco or beaver pelts, it was common for people to use coins (of nearly any country – Spanish dollars were in wide circulation) or paper money.
In the years prior to the Revolution, responding to shortages in available coin and paper money, the colonies had each established their own currencies, based on the British system of pounds, shillings and pence. Keeping track of how the value of the different colonies’ pounds related to British pound – and to one another – vexed many who traded and traveled among the colonies, and hindered trade between the colonies.
Inflation resulting from over-issuance of these bills, and the wide variation in the value of the different colonies’ pounds finally led Parliament to pass a number of Currency Acts to restrict the issuance of paper money in America[i]. These acts are among the factors that raised tensions between the Colonies and the mother country, and it’s likely that they contributed to the break with the Crown, as they caused even greater hardship for Colonial trade.
Once the rebellion began, all of the rebel colonies began issuing paper currency with abandon, in order to pay soldiers, purchase supplies and war materiel. In addition, the Continental Congress authorized the issue of a national currency, known as “Continentals.” In a conscious attempt to break from the British denominations, these bills were issued in dollars and fractions of dollars. The word “dollar” was a well-known term for Spanish pieces of eight, and derived the German thaler, which referred to a large silver coin.[ii]
All of these currencies were subject to rampant inflation, as the issuing bodies simply printed more as needed to cover expenses, and the phrase “not worth a continental” came to be widely used. Worse yet, the British government in New York undermined the fledgling currency through massive counterfeiting operations.[iii] By the end of the war, these bills were so worthless that they could only be redeemed for Treasury bonds — at just 1% of their face value.[iv]
As a result of these impediments, many merchants in the Revolutionary Era avoided using cash at all, with the exception of hard money – foreign coins, often those from Spain, or Portugal – instead keeping complex credit account books, which were often paid off in goods or services. This “bookkeeping barter” allowed merchants to track their customers’ purchases in a currency familiar to both, and customers to fulfill their debts by delivering anything from agricultural goods, to crafts, to labor, as suited both parties.[v]
Although the US dollar was officially established as the national currency after the end of the war, along with the innovative decimal division into dimes and pennies, the old ways died hard. In the 1820s, John Quincy Adams reported that the dime was “utterly unknown,” whereas a Spanish reale would be accepted as a shilling in New York, nine pence in Boston and eleven pennies in Philadelphia, all based on the “absurd” application of English denominations to Spanish coins.[vi]
By the time of the Civil War, though, nearly a century after the American Revolution, our modern ideas of the American dollar had prevailed. Aside from the departure from the gold standard in the early part of the 20th century (and the attendant inflation since that time), our monetary system has been largely unchanged since that time, with the familiar pennies, nickels, dimes and quarters, and various denominations of paper currency for the dollar and beyond.