The African Development Bank (AfDB) in partnership with the international accounting organization, KPMG, has recently unveiled bold plans for a new currency backed by minerals, a commodity in which Africa is abundant. Their proposal for a “non-circulating” currency called African Units of Account (AUA) would allow them to take advantage of their plentiful mineral reserves to stabilize currency markets, reduce the reliance on the U.S. dollar, and channel more investments into clean energy infrastructure. Implementing the AUA could potentially aid their efforts in closing the energy financing gap and achieving more economic autonomy.

The Current Currency Problem

While containing over 30% of the globe’s mineral reserves and 85% of the world’s manganese, Africa garners ~3% of energy investments annually and only 2% of green investments globally in 2024. Meeting the continent’s clean energy in infrastructure needs requires a heavy investment of an estimated $200 billion per year until 2030. 

A major barrier to fulfilling these demands is their dependence on hard currencies like the U.S. dollar or euro for financing, resulting in a currency mismatch. This currency mismatch, where project revenues are earned in weaker currencies but debt payments are made in hard currencies, results in higher borrowing costs, financial instability, and reduced investor confidence. Drawn to the historical Gold Standard approach, the AUA is a hopeful attempt to address its currency and energy issues. 

Implementing a New ‘Gold Standard’ Currency

The non-circulating AUA currency supported by minerals like cobalt, manganese, lithium, and copper, to name a few, is a system that would be recognized by the government as legal money and designed for project financing rather than daily use. 

Here is how this mechanism would work: participating African countries would contribute a pre-agreed portion of their natural resource endowments into a shared pool. However, the minerals are not physically exchanged daily, but rather pledged as collateral. Then, through a settlements agent, the international banks and development finance institutions (DFIs) would offer loans for energy infrastructure projects in hard currency with a stable exchange rate to the AUA. The settlement agents will receive the minerals and pay for them over time, while local currencies are received from borrowers.

Finally, this mechanism would hopefully attract more investors for their energy infrastructure by reducing the risks associated with the currency mismatch. 

Historically, many nations have followed the ‘Gold Standard’ approach, where commodity-backed currencies like gold or silver are used to guarantee the value of money. Over the 20th century, countries transitioned to fiat money, such that foreign governments could not exchange dollars for gold anymore. Unlike most nations that have abandoned commodity-backed currencies for fiat money, Africa’s proposal sets them in a partial reverse to the traditional resource-based currency, using the AUA for project financing only. 

While Africa’s primary reason for adopting the AUA is to stabilize investments in energy infrastructure, using a minerals-backed method also poses some risks. First, this limits flexibility for governments compared to fiat money, making it harder to respond to inflation or economic crises. Another consideration is that the value of minerals can fluctuate. 

AUA Powering Mission 300 and SDG 7 Goals

Besides the value of securing more investments in Africa’s clean energy projects, the AUA system would give the continent more economic autonomy and support their “Mission 300” energy goal. 

The AfDB’s ambitious Mission 300 initiative, a step towards achieving SDG 7 goals, aims to connect 300 million people to electricity by 2030, which is half of the estimated 600 million Africans who lack access to electricity. Combined with the ability to manage their financial system using their natural resources, the implementation of the AUA directly supports Mission 300.

Barriers to Implementation

While the potential benefits are significant, many challenges remain beneath the surface. Logistically and politically, participating countries must coordinate and build foundations of trust to ensure fair governance and stability. 

In conjunction, robust frameworks would be essential to prevent corruption and neocolonial exploitation of minerals, a lesson learned from history. Another challenge that must be considered is the jurisdiction of the minerals, which introduces operational challenges in moving the products in and out of countries. 

What’s Next for the AUA?

Lead Economist at KPMG Frank Blakmore said, “The economic impact of leveraging Africa’s critical mineral wealth is profound.” 

“The AfDB’s currency convertibility mechanism will play a crucial role in stabilising investment flows and sustainable development,” Wale Shonibare, Director of Energy Financial Solutions at the African Development Bank suggested. 

The future of the AUA proposal has not been specifically mentioned besides a deeper economic analysis and a refinement of their operating model. Eventually, the AfDB plans to create a presentation for stakeholders and governments for implementation. If successful, the AUA could reshape Africa’s economy and energy infrastructure, advancing missions and SDG efforts.