The most plausible "etymology" of the dollar sign is that it's ultimately a ligature of a scribal abbreviation for "pesos" — P^s — that was in use in Mexico the mid-18th Century. The two letters came to be written over top of each other, and the P subsequently lost its upper curve (its P-ness, if you will) to become a vertical line through an S.

Obviously, this is a very narrow question so there's not a substantial amount of direct scholarship to cite, but this is the explanation given by the US Bureau of Engraving. This theory is also mentioned in a 1930 edition of Popular Science (middle of page 59).