<P> There were three general types of money in the colonies of British America: specie (coins), paper money and commodity money . Commodity money was used when cash (coins and paper money) was scarce . Commodities such as tobacco, beaver skins, and wampum served as money at various times and places . </P> <P> Cash in the colonies was denominated in pounds, shillings, and pence . The value varied from colony to colony; a Massachusetts pound, for example, was not equivalent to a Pennsylvania pound . All colonial pounds were of less value than the British pound sterling . The coins in circulation in the colonies were most often of Spanish and Portuguese origin . The prevalence of the Spanish dollar in the colonies led to the money of the United States being denominated in dollars rather than pounds . </P> <P> One by one, colonies began to issue their own paper money to serve as a convenient medium of exchange . In 1690, the Province of Massachusetts Bay created "the first authorized paper money issued by any government in the Western World ." This paper money was issued to pay for a military expedition during King William's War . Other colonies followed the example of Massachusetts Bay by issuing their own paper currency in subsequent military conflicts . </P> <P> The paper bills issued by the colonies were known as "bills of credit ." Bills of credit were usually fiat money: they could not be exchanged for a fixed amount of gold or silver coins upon demand . Bills of credit were usually issued by colonial governments to pay debts . The governments would then retire the currency by accepting the bills for payment of taxes . When colonial governments issued too many bills of credit or failed to tax them out of circulation, inflation resulted . This happened especially in New England and the southern colonies, which, unlike the Middle Colonies, were frequently at war . Pennsylvania, however, was responsible in not issuing too much currency and it remains a prime example in history as a successful government - managed monetary system . Pennsylvania's paper currency, secured by land, was said to have generally maintained its value against gold from 1723 until the Revolution broke out in 1775 . </P>

When was paper money used in the us