The African Development Bank (AfDB) has proposed a bold new currency arrangement backed by essential minerals like cobalt, copper, lithium, manganese, and other rare earth elements crucial to the global energy transition and electric vehicle production. This innovative approach aims to stabilize Africa’s volatile currency markets and attract much-needed investments in the region’s green energy sector.
Thank you for reading this post, don't forget to subscribe!Despite Africa holding about 30% of the world’s critical mineral reserves, it receives only 3% of global energy investments annually, with just 2% ($40 billion) of worldwide green investments last year. The AfDB believes these figures are largely due to the continent’s currency instability and is proposing a new non-circulating currency, the African Units of Account (AUA), which would be backed by the region’s mineral reserves.
A Strategy for Green Energy Investment
The AfDB’s plan highlights the urgent need for Africa to double its clean energy investments, reaching an average of $200 billion per year to reduce carbon emissions and increase electricity production. By pooling proven critical mineral reserves from different countries, the proposed AUA would offer a stable alternative to local currencies, which could then be converted at an agreed rate to secure investment.
The concept is reminiscent of the Gold Standard, which once anchored global currency stability. According to the AfDB, the value of the AUA would be supported by a basket of critical commodities, ensuring it holds value better than any African currency. The proposed currency would also mitigate currency and convertibility risks, making it more attractive to international investors in green energy.
Navigating Global Financial Risks
The AfDB’s proposal builds on existing systems like the CFA-Euro peg, which is backed by external reserves in Francophone African countries. However, the introduction of a new mineral-backed currency would provide an innovative mechanism for African governments to attract foreign capital for energy projects.
This move is part of a broader trend among emerging market nations to reduce their reliance on the U.S. dollar for trade and transactions. Tensions over this shift have already been seen, with former U.S. President Donald Trump threatening to impose tariffs on BRICS nations if they attempt to replace the dollar as their reserve currency.
The AfDB’s currency proposal aims to counter these challenges by ensuring that revenues generated from local electricity sales are used to purchase minerals that would be converted into dollars, creating a cycle of investment that benefits both Africa and global green energy initiatives.
