The African Development Bank (AfDB) has introduced a proposal for a new currency system backed by Africa’s critical mineral reserves, drawing inspiration from the historic Gold Standard. The plan seeks to enhance economic stability, attract clean energy investments, and strengthen Africa’s role in global resource markets.
Despite holding approximately 30% of the world’s critical mineral reserves, Africa only attracts 3% of global energy investments, with a mere 2% (about $40 billion) directed toward green energy projects annually. The volatility of African currencies has been cited as a major deterrent to attracting large-scale investments.
To address this, the AfDB is proposing a non-circulating currency, known as the African Units of Account (AUA), which would be backed by a basket of critical minerals, including cobalt, copper, lithium, manganese, and rare earth elements. These minerals are essential for clean energy production, electric vehicles, and the global energy transition.
Under this proposal, African nations would pool a pre-agreed amount of their proven critical mineral reserves, allowing local currencies to be converted at a stable, agreed rate. This mechanism is designed to:• Reduce reliance on volatile local currencies• Lower the cost of capital for clean energy projects• Encourage regional financial integration• Position Africa as a key player in global commodity markets
By linking a new financial instrument to tangible mineral wealth, the AfDB believes it can provide a more stable alternative to the fluctuating African currencies, which often deter long-term investments.
The AfDB’s proposal draws inspiration from the historical Gold Standard, which provided global currency stability before being abandoned in the 1970s. It also expands on the CFA franc’s peg to the euro in Francophone African countries, where external reserves help maintain currency stability.
According to the AfDB, a basket of critical minerals would retain its value better than any single African currency, making the AUA a more reliable unit for financial transactions and investment security.
The successful implementation of this system could:• Narrow Africa’s $400 billion annual funding gap• Support the continent’s sustainable development goals• Enhance energy security and economic prosperity• Increase cross-border financial cooperation
However, the proposal does not yet have a timeline for execution, and experts have raised concerns about:• The feasibility of mineral valuation and reserve pooling• The willingness of African governments to adopt a shared system• Market acceptance and investor confidence in the AUA
Under the AfDB’s framework, revenues from electricity sales in local currencies would be channeled to a designated settlement agent. This entity would sell an equivalent amount of minerals to generate U.S. dollars, ensuring the repayment of loans for energy development projects.
The AfDB’s plan presents a bold vision for financial stability and economic growth in Africa. If successfully implemented, a critical minerals-backed currency could transform Africa’s financial landscape, making it a stronger player in the global economy while driving much-needed investments in clean energy and infrastructure.
However, with no concrete implementation timeline yet, much will depend on government cooperation, investor confidence, and market adaptability in the coming years.
Source: Business Insider Africa
