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Until El Salvador gained independence from Spain in 1821, and then from the United Provinces of Central America in 1839, El Salvador used first the Spanish colonial real and then the Central American Republic real, both available only in coin form.
Other currencies that circulated included cacao almonds, which predated the real and had a value of 1/200 of a real, and various issues from large plantations and other governments. - The newly independent El Salvador also called its first currency the real. It was minted in coin form only, in denominations of 1/2, 1, 2 and 4 reales, and was made of silver. In 1877, paper currency in the form of the peso was introduced and gradually took over in importance until the real was discontinued in 1886.
- The paper banknote peso was introduced in 1877 and became the only currency in El Salvador in 1886. When the peso was introduced, the exchange rate was 8 reales per 1 peso. Pesos were printed not by the government but by individual banks.
- The colon replaced the peso in 1919 at an even exchange rate. What made the colon different than the peso, other than being named in honor of Cristobal Colon (Christopher Columbus), was the fact that the colon was pegged to the U.S. dollar at a rate of 2 colones to 1 dollar and remained that way until 1931, when El Salvador stopped using the gold standard and allowed the currency to float. After the advent of the U.S. dollar as official El Salvadoran currency in 2001, the colones hung on in more rural areas until 2004, when the use was officially discontinued. Until the El Salvadoran Central Bank assumed all minting and printing duties in the 1930s, many banks in El Salvador circulated their own colones.
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In an effort to stabilize the economy, El Salvador introduced the U.S. dollar as the official currency in 2001 and started using it for all government business and record keeping. The colon was valued at 8.75 per dollar and had been slowly and steadily declining against the dollar, which was the de facto currency, for decades. Implementing the dollar system served as a way to prevent the international purchasing power of the El Salvadoran currency from eroding any more.
One of the main obstacles to the dollarization of the Salvadoran economy was the fact that dollar-denominated coins have no numbers and their values are printed as words in English. Since only the United States has the ability to mint dollar-denominated coins, El Salvador couldn't mint its own in Spanish. The country had no choice but to use the standard issue U.S. coins. Because the large majority of Salvadorans couldn't read English to determine the value of the coins, the government launched a massive education campaign complete with posters that showed each coin and its value written in Spanish
