Monday, February 17, 2025

AfDB urges African nations to back currencies with gold and critical minerals

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The African Development Bank (AfDB) has proposed that African leaders adopt a gold-backed currency system to stabilize weakening local currencies against major international currencies.

In response to the free fall of its currency, Ghana introduced an innovative remedy by backing its currency with gold and implementing the “gold for oil” policy, which allows the Central Bank to use purchased gold to pay for oil imports instead of relying on the US dollar.

In an ambitious bid to transform Africa’s financial landscape, the AfDB has proposed a “gold standard” currency system backed by the continent’s vast reserves of critical minerals including cobalt, copper, lithium, manganese, and rare earth elements essential for the global energy transition and electric vehicle production.

Despite holding roughly 30 percent of the world’s critical mineral reserves, Africa attracts only a small share of global energy investments.

The AfDB reports that while global foreign direct investment declined by 8 percent last year, Africa’s potential remains largely untapped, receiving just 3 percent of global energy investments and only $40 billion in green project funding.

One of the key challenges, according to the AfDB, is the continent’s volatile currency markets, which have hindered the flow of capital needed to drive large-scale clean energy initiatives.

The AfDB’s proposal suggests that African nations pool a pre-determined portion of their proven critical mineral reserves to collectively back a new currency, the African Union Asset (AUA). This collective reserve would underpin the AUA, allowing local currencies to be converted at an agreed exchange rate.

The envisioned currency system is expected to deliver multiple benefits. By reducing the cost of capital for clean energy projects, it could encourage cross-border financial cooperation and strengthen Africa’s negotiating power in global resource markets.

This, in turn, is seen as a pivotal strategy for narrowing the continent’s $400 billion annual funding gap and advancing sustainable development.

By leveraging its abundant mineral resources, the AfDB aims not only to lower financing costs but also to stimulate economic growth and enhance long-term energy security across the continent.

Initially proposed last year, the AfDB’s plan now detailed for the first time—represents a bold step toward reshaping Africa’s investment climate and reinforcing its role in the global energy transition.

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