Initially, British currency circulated. This was supplemented, from 1921, by banknotes issued by the Tongan government. The notes were marked as sterling and included the rather unusual 4 shillings denomination. When the Australian pound devalued relative to the pound sterling at the beginning of the Great depression, this caused considerable confusion on the smaller islands of the British Western Pacific. In the mid-1930s people in these islands were asking whether or not their sterling accounts were to be considered as the United Kingdom unit, or the Australian unit. Clarification was sought. In 1936, the Tongan pound was devalued to sixteen shillings sterling, or £1 5s = 1 pound sterling, thus setting the Tongan pound equal to the Australian pound. Later issues of banknotes had the word "sterling" crossed out, then removed altogether. In 1967, the pound was replaced by the pa'anga at a rate of 1 pound = 2 pa'anga.
For a more general view of history in the wider region, see history of pound sterling in Oceania.
In 1921, 5 pounds notes were introduced, followed, in 1933, by notes for 4 and 10 shillings and 1 pound. These four denominations were issued until 1966.