Throughout the “Legend of Zelda” franchise there have been two types of rupees.
This discussion was sparked by this image:

Which was found on Vertigo Gaming thanks to Vook.

Now, we believe the timeline for the games is as follows:
Minish Cap, Ocarina of Time, Majora’s Mask, Oracle of Seasons, Oracle of Ages, Twilight Princess, A Link to the Past, The Legend of Zelda, Zelda II: Adventure of Link, The Wind Waker and then Phantom Hourglass.
So, taking this into account, we begin our adventure.

As we know, Hyrule is ruled by kings. Minish Cap was first, meaning that what we will refer to as “design 2″ was the “original” design of the rupee in this theory.
The King, and other Kings before the King in Ocarina of Time, or perhaps even before that King, liked design 2 and kept it.
In – or before – Ocarina of Time, however, the King decided to change it to what will be named “design 1″ and replaced all rupees with this design.
Being the magical kingdom of Hyrule, the replacement process was carried out with a spell; a particularly large spell which changed all the rupees – no matter where they are – to match the current design. More on this later.

Around this time, Hyrule had ties to other lands such as Termina, Holodrum, Labrynnia and Koholint.
These ties resulted in the use of a common currency. That is, the current design of rupee.
These lands continued to use the currency after the ties were dropped, resulting in their use in the land of Koholint.

The King around the time of A Link to the Past, and all subsequent Kings, have kept design 2.
Using the same magic, the design was changed. Perhaps by coincidence, the King created design 2 without knowing it had been used. However, it would be more likely that he saw a painting or pictograph of the older design and liked it.

The questions “Why are rupees found where no adventurer has been?” and “Why do monsters turn into items and money when destroyed?” were asked.
A possible solution is that Ganon or Ganondorf uses alchemy to create his monsters.
In alchemy, to obtain, something of equal value must be lost.
When the monsters are destroyed they return to the base items they were created with, leaving behind hearts and rupees – among various other items.
Generally the tougher the monster, the better the items you will receive are.
This would fit with the alchemy theory.
Weaker enemies become a single rupee or heart, where bosses become a full heart piece.

The spell used by the King is one that affects all of Hyrule, and the King having the best spellcasters available, it can obviously penetrate through Ganon or Ganondorf’s alchemically created monsters to modify the base items it will become when destroyed – therefore any enemies created in the time of old currency would have their base elements changed to fit the new ones.
This magic affects things that are even underground.
The same spell has been used to change the appearance of the rupee in various ways by the various Kings.

If you have any questions, or think we may have overlooked something, feel free to leave a comment, and we’ll try to answer them as best we can.