The Answer:

Based on the study of old manuscripts, it appears to have originated with an abbreviation for "pesos." In revolutionary times—before the United States was independent, let alone printing its own currency—the Spanish dollar was widely used in the colonies. Spanish dollars were also called also known as pesos de 8 reales, or pieces of eight, and "pesos" was abbreviated "ps." Over time, the "p" and "s" overlapped and merged, forming what we now know as the dollar sign, $.

Similarly, the word "dollar" comes from the Spanish dollar.

For more information, see the U.S. Bureau of Printing and Engraving site, and Cecil Adams's explanation of the dollar sign.

—The Editors