Though the United States dollar was officially adopted in 1785, paper currency didn't fully enter circulation until the Civil War. The current appearance of modern US bills developed only after a long period of economic development based on commodities and coinage.
The earliest form of currency used on the North American continent includes Native American beads and coins minted in Europe. Given the choice, which form of currency would you want to revisit? Does the barter-based wampum appeal to your sensibilities, or perhaps a gold and silver system that would literally weigh you down?
The Spanish real, or "royal," was stable, heavily regulated, and widely circulated in the Americas during the 16th and 17th centuries. Referred to as "pieces of eight," reales functioned as currency and commodity alike in English colonies. The coin became Virginia's standard mode of exchange in 1645.
Spanish pieces of eight were used in daily transactions, officially made legal tender in 1793, and remained a form of recognized money until 1857. Even after the introduction of the dollar, John Quincy Adams commented in the 1820s that Spanish pieces of eight were prevalent while the country's "own lawfully established dime... remain[s], to the great masses of the people, among the hidden mysterys of political economy - state secrets."
The notes acquired their "legal tender" moniker due to language printed on the notes. The obligation on the first bills issued in 1862 stated, "This note is a legal tender for all debts, public and private, except duties on imports and interest on the public debt, and is exchangeable for US six per cent twenty year bonds, redeemable at the pleasure of the United States after five years."
English colonists who landed in North America continued to use the currency with which they were most familiar: the British pound. Pounds, shillings, and pence were deeply ingrained methods of exchange.
At the time, Britain functioned on a bimetallic system, where legal currency was silver and gold. Gold guineas were set to equal a specific weight of silver, a system that worked against colonists due to its complexity and lack of practicality. Within the colonies, British coins mostly went back to England to pay for imports anyway. This made other means of exchange much more common.
Individual states were prohibited from making their own currency in the United States Constitution. In 1792, Congress created the United States Mint. The Mint mostly stamped and circulated coinage, a uniform currency to be used by all states.
Although states couldn't make their own money, privateers could. As a result, the new government dealt with widespread inflation and counterfeiting. The struggle between national and private currency continued until the outbreak of fighting between the North and South. When the nation split, each entity printed its own notes to pay for the conflict.
Demand notes, or greenbacks, were issued by the United States Treasury in 1861. Demand notes did not accrue any interest and met the needs of a nation that coinage could not sustain. The circulation of greenbacks increased inflation, but a tax placed on private currencies helped limit competing printed notes.
Demand notes (printed in $5, $10, and $20 amounts) could be exchanged for gold or silver at United States banks. They were later replaced by legal tender notes that weren't as easily converted to coin.