Why were there so many different types of money used in colonial times?

Answer 1

Each colony was quasi-independent and Britain was the closest thing to a central financial authority. Currency had to be shipped across the Atlantic in whatever quantities the Crown was willing to supply. In addition other countries' colonies in the Western Hemisphere similarly used the parent currencies to whatever extent they were available.

The combination of insufficient currency for transactions and the lack of a formal structure for converting from one country's money to another meant that colonists had to make do with whatever coins were available.

Spain's colonies were far more extensive than Britain's and over time its currency became a de facto standard in much of the Western Hemisphere. The most common coin was the peso de ocho which was known in English as both the "piece of eight" and the "Spanish milled dollar". Spanish milled dollars were carefully controlled as to weight and purity which led many people to use them in preference to other coins, including those supplied by Britain, whose values were not so closely controlled.

As an epilogue, by the time of the American Revolution Spanish "dollars" were so commonly used in the colonies that they were the basis for the new nation's own currency. The first American $1 coins were almost exactly the same size and weight as Spanish "dollars"; in fact, Spanish coins remained in circulation together with US Coins until 1857.

A major difference between the two currencies was that change-making with a peso de ocho was achieved by repeatedly dividing them in half, resulting in denominations of a half, quarter, and eighth of a Spanish "dollar" while US coins were decimal with the dollar divided into fractions based on 5 and 10. To simplify conversions between the two, the early US Mint opted to produce 25¢ coins ("two bits" !) instead of a 20¢ denomination that would fit in a truly decimal coinage system. Today the US is one of the few countries that continues to use a 25¢ coin, so every time you spend a quarter you're using a coin that's an ancestor of the famous Piece of Eight.