Commodities July outlook: At 250, America's confidence is still the currency

The world's largest economy, issuer of the world's reserve currency and home to the deepest capital markets began with one of history's great monetary failures.

When the Revolutionary War began in 1775, the Continental Congress faced an impossible problem. It had to finance a war without the power to tax. Instead, it printed money.

Initially, the experiment worked. Americans accepted the newly issued Continental currency, believing independence would eventually be won. But as the war dragged on, Congress printed ever larger quantities to fund military expenses while individual states issued currencies of their own. What began as roughly $6 million in circulation in 1775 ballooned to more than $240 million just four years later – a forty-fold increase (Chart 1).¹

Confidence disappeared almost as quickly as the printing presses up and down the eastern seaboard ran.

By 1781, the Continental Dollar had become virtually worthless. Prices soared. Merchants increasingly demanded payment in gold, silver or foreign coins rather than paper money. The phrase, "Not worth a Continental" entered the American vocabulary and became synonymous with something of no value.

George Washington experienced the consequences firsthand. One of his greatest frustrations as Commander-in-Chief was not defeating the British, it was having to pay his soldiers with money that lost value almost as quickly as it was issued. Recruitment suffered. Supplies became scarce. Inflation became almost as destabilizing as the war itself.

The experience profoundly shaped the Founding Fathers. They understood that a nation could survive military defeat more easily than it could survive the loss of confidence in its money.

Two hundred and fifty years later, the circumstances could hardly be more different.

The questions are remarkably familiar.

Confidence

America's first competitive advantage

George Washington inherited a nation burdened by war debt, lacking a central bank and struggling to establish credibility with investors. America's greatest asset wasn't gold. It wasn't farmland. It wasn't even its abundant natural resources. It was the ability to convince the world that the US would honor its promises.

Alexander Hamilton understood this better than anyone. As newly appointed Treasury Secretary, his first priority was simple: establish confidence in the new Republic. Hamilton argued that debt, if managed responsibly, could become a national strength rather than a weakness. A government that consistently honored its obligations would lower borrowing costs, attract investment and establish lasting credibility. In his words, "A national debt, if it is not excessive, will be to us a national blessing."²

For much of the next two centuries, that principle held. Today, the challenge has shifted.

The US no longer struggles to establish credit. It enjoys the world's deepest capital markets and continues to borrow in its own currency at a scale unmatched in history.

The question is no longer whether America can borrow. It is whether borrowing can continue growing faster than the economy indefinitely. At the nation's founding, federal debt stood at roughly 30% of GDP.³ Today, that number exceeds 120%.⁴ And with that, credit has been established while preserving confidence has become the greater challenge.

The dollar

Confidence is still the currency

The Founding Fathers understood something that remains true today: money derives its value from confidence.

After witnessing the collapse of the Continental dollar, they anchored the young nation's monetary system to gold and silver. Gold was officially valued at just $19.39 per ounce via the Coinage Act of 1792. Adjusted for inflation, that ounce of gold would be worth roughly $695 today.⁵ Instead, gold trades near $4,054 (Chart 2).⁶

The difference is telling.

Inflation explains only a fraction of gold's journey over the past 250 years. The remainder reflects investors' willingness to pay a premium for an asset that cannot be printed, defaulted upon, or diluted.

Ironically, central banks appear to be reaching a similar conclusion.

Reserve currencies rarely disappear overnight. History suggests they evolve gradually over decades, but a typical decline is driven by government spending that pushes taxes past the ability of citizens to pay. The successor currency is typically from a rising power that is challenging the dominance of the previous country in trade, or military influence:

Today the dollar remains overwhelmingly dominant. It represents roughly 57% of global foreign exchange reserves, appears on one side of nearly 90% of all foreign exchange transactions, and continues to underpin much of international trade and global finance.⁷

Yet the direction of travel has changed.

The dollar's share of official reserves has declined from approximately 71% at the turn of the century to about 58% today.⁸ Importantly, most of that decline has not flowed into another dominant reserve currency. Instead, central banks have diversified across a wider range of currencies while simultaneously accumulating gold at the fastest pace since modern records began.

Diversification into other currencies like the euro or pound reflects the reality that most developed countries have also dramatically expanded their money supply and debt burden since the global financial crisis. Typically, these actions soften a currency, which has not gone unnoticed by emerging economy central banks.

Central banks have purchased more than 1,000 tons of gold annually for three consecutive years, largely driven by emerging market central banks. That does not suggest the dollar is about to lose its reserve currency status. It suggests confidence, like freedom, requires continual maintenance rather than assumption.

Trade

Old principles, new battlegrounds

Washington's America depended upon trade. Modern America depends upon supply chains. And while the names have changed, the objective has not.

Washington sought commercial relationships without strategic dependence. Today's policymakers debate tariffs, critical minerals, semiconductors, rare earths, reshoring and energy security. The products have changed from tobacco and cotton to lithium and microchips, while the strategic question remains remarkably familiar.

How much dependence on foreign nations is too much?

Recent years have demonstrated that economic security and national security have become increasingly inseparable. Think energy, critical minerals, industrial metals, and food.

These are no longer simply commodities. They are strategic assets.

Freedom, institutions, and confidence

The Founders viewed liberty primarily through the lens of limiting government power: freedom of speech, freedom of religion, property rights, and protection from arbitrary taxation.

Today's debates include digital privacy, artificial intelligence, cybersecurity, and data ownership.

Technology has transformed the conversation, while human nature has not.

George Washington's farewell address warned that excessive political factions could weaken institutions, invite foreign influence and place party above country. Those words feel remarkably contemporary as political disagreement is not new, while the speed at which it spreads has increased dramatically.

The commodity lesson

If America's first 250 years teach investors anything, it is that confidence is built slowly and tested repeatedly. Empires rise, currencies evolve, political cycles come and go, and technology reshapes economies.

Yet one lesson has endured across every generation. The assets that preserve confidence continue to matter:

The commodities themselves have not changed, only the reasons investors own them have. The Founding Fathers understood that freedom required more than a constitution. It required credible institutions, sound finances, a trusted currency, confidence in the future.

Those pillars remain just as important today.