This article provides a revised account of the development of financial instruments, money and banking in the early penal colony of New South Wales. It is found that private instruments monetised the economy, while the role of state debt, coin and commodities was to finally settle remaining balances. Money originated in the form of small merchant notes. These were created by the need to pay labourers and underpinned a local pound currency standard. A detailed review of colonial court cases and currency legislation reveals that the first bank was founded, contrary to colonial orders, to remove the disruptive impact of exchange rate fluctuations and to achieve a stable private note issue at par with pound sterling bills on London.