For a period in the middle of the nineteenth century British Honduras operated the British sterling monetary system just like Jamaica and Bermuda. In the wake of the international silver crisis of 1873 the silver peso of neighbouring Guatemala drove the British currency out of circulation. In an attempt to return British Honduras to the gold standard, and influenced by the fact that most imports were coming from New Orleans in the United States, a new currency was introduced into British Honduras based on the US dollar, bringing British Honduras into line with Canada.
At that time, the Canadian dollar was on the gold standard, and one Canadian dollar was equal to one American dollar. This is the point where the currency history of British Honduras diverges from that of the rest of the British West Indies. In 1885, 1 cent coins were issued, followed by higher denominations in 1894. This year also saw the first issue of banknotes by the government and a switch from the silver Guatemalan peso to the gold U.S. dollar as the base for the currency, with $4.866 = 1 pound. The rate of $4.866 as opposed to $4.80 is explained by the fact that when the US dollar was first created in 1792, it was based on the average weight of a selection of worn Spanish dollars. Hence, the US dollar was at a slight discount in relation to the Spanish dollar. Following the introduction of the US dollar gold standard to British Honduras, the 25 cent coins were referred to as shillings due to their closeness in value to shilling sterling.
When the United Kingdom abandoned the gold standard in 1931 the British Honduras dollar continued with its attachment to the US dollar and as such it did not become part of the sterling bloc. At the outbreak of the second world war, unlike in the case of Canada, Newfoundland, and Hong Kong, British Honduras did join the sterling area even though it maintained its fixed exchange rate with respect to the US dollar. The sterling bloc should not be confused with the sterling area. The former was a group of countries who pegged their local currencies to sterling when the United Kingdom abandoned the gold standard in 1931, whereas the latter was an exchange control arrangement introduced as an emergency measure at the outbreak of the second world war.
In 1949 the British pound was devalued from US$4.03 to US$2.80. Since the British Honduras dollar was pegged to the US dollar, this caused a sudden increase in the value of the British Honduran dollar relative to the pound. Protests ensued which led to a devaluation of the British Honduran dollar to a value of 70 U.S. cents (equal to 5 shillings sterling).
Following Harold Wilson's devaluation of sterling in November 1967, the British Honduran dollar again devalued in sympathy with the British pound to 60 US cents. In 1978, the link to the British pound of BZ$4 = £1 was abandoned and once again the Belize unit was pegged to the US dollar at a fixed rate of BZ$2 = US$1. This new rate which still continues today, reflects the devaluation of 50% in relation to the original parity with the US dollar in 1885, which last applied in 1949.
Following the independence of Belize in 1981, the British Honduras Dollar became the Belize Dollar.