New Pan-African currency initiative for minerals trade and energy transition

Marshall Kouakou Konan
Abidjan, Côte d'Ivoire March 28, 2025

T he African Development Bank (AfDB) has developed a concept for a Pan-African currency system that will improve mineral trade and facilitate Africa's energy transition. The Bank calls it the ‟African Units of Account” (AUA) and describes it as ‟ a non-circulating currency backed by a basket of critical commodities and a Pan-African settlements agent”. It projects that the mechanism will reduce the costs of capital of energy projects by mitigating currency risks.

The proposal borrows concepts from two previous currency experiments. The first is the “Gold Standard” that sustained the international monetary system from 1870 to 1971. A second source of inspiration is the CFA-Euro peg in Francophone countries. The Gold Standard and the CFA are evidence that a common medium for trade will work throughout the continent of Africa.

Under this new mechanism, countries will agree to pool and pledge a pre-defined percentage of their proven commodity reserves into a diversified commodity basket. According to the AfDB, such a pool of commodities and renewable energy minerals hold promise for long-term borrowing for clean energy projects. In practice, the basket of precious minerals will underpin the conversion of local currency into a strong international currency and thus facilitate debt servicing. Through this mechanism, the AfDB projects that the AUA will increase intra-African trade and reinforce regional financial integration.

Non-exhaustive inventory of minerals and energy sources

The AfDB based this currency model on Africa's rich mineral potential and energy generating capacity. Africa is home to 60 percent of the world’s best solar potential, 50 percent of the world’s wind power capacity and 71.4 percent of the world’s cobalt. The continent also has 76 percent of the world’s platinum and 58 percent of the world’s manganese (51 percent).

The continent is also home to over 30 percent of the world’s mineral resources. It produces a large percentage of the world’s output of certain minerals such as diamonds (51.6 percent), phosphates (79 percent), uranium (17 percent), bauxite (24 percent) and copper (12 percent). In 2019, close to 63 percent of the world’s cobalt production and 41 percent of the world’s tantalum (derivative from Coltan) came from the Democratic Republic of the Congo. Lithium and cobalt are key metals in the production of batteries for mobile phones and electric vehicles.

The AfDB bemoaned the fact that the continent only attracts three percent of global energy investment and two percent of global green energy investments despite its vast wealth. In this context, the AUA is a viable mechanism for the financing the AfDB’s ‟Mission 300” initiative, which it launched with the World Bank on April 17th, 2024. The goal of this program is to provide access to electricity to 300 million Africans by 2030 and build climate resilience. Africa needs US$200 billion annually to transition to a clean energy during the period 2026‐2030. For the AfDB, the AUA is a viable and alternative option to conventional forms of financing.

Mitigating Currency Risks

The AUA creates a new opportunity to international banks and development finance institutions (DFIs) to provide energy infrastructure loans, to participating countries, in strong international currency. Another advantage is that the mechanism comes with a stable exchange rate for lenders and borrowers.

Lenders and borrowers will have the freedom to choose to work through an AUA ‟Settlements Agent”. The AfDB envisages the Settlement Agent as a provider of clearing and custodial services and also a back office manager for counterparty, settlement, and collateral risks. In the AfBD’s vision, the ‟Settlements Agent” must guarantee the sustainability of the mechanism. Multilateral Development Bank (MDB) such as the African Development Bank, or Development Finance Institutions such as the Afrexim Bank or the African Guarantee Fund are potential fits for this role.

Challenges ahead

Africa has 42 currencies, which are not convertible with each other. This makes cross-border trade expensive and slow. The currency landscape of the African continent offers a fractured picture of progress and resistance to change.

However, West and Central Africa presents evidence that a single currency works on the continent. For over six decades, 210 million people in fourteen African countries have used a single currency, the CFA franc, as official regional currency for domestic and cross border trade. In a bold move, West Africa plans to leverage the CFA franc to introduce a unified currency called the ‟ECO”. Francophone and non-Francophone nations such as Ghana, Nigeria, Sierra Leone, and Liberia will adopt the new currency. At another end of the spectrum, East-Africa and Southern African countries continue to cling on to their depreciating domestic currencies.

Regional and Pan-African development finance institutions have tried to tackle the negative effects of coexisting multiple currencies. The African Continental Free Trade Area (AfCFTA) for example, has developed a payment system that offers an alternative option to international currencies. The Pan-African Payment and Settlement System (or PAPSS) allows secure cross-border payments in Africa. Since inception, ten African central banks and fifteen members of Caribbean Community (CARICOM) countries have adopted the PAPSS.

But despite its potential, the AfCFTA faces obstacles to effective operation, such as insufficient political commitment to free movement of people and goods. Corruption, weak infrastructure, and a pervasive lack of trust amongst African nations are stalling ¹. The African Units of Account (AUA) will have to overcome these same chronic hurdles.

Another challenge relates to the importance of minerals in public finances. Resources-rich African countries export the totality of their minerals to earn foreign currencies. Throughout the continent, national economies rely on mining, which generates over 50 percent of their export earnings. In Botswana, Guinea, Mali, and Burkina-Faso, mining represents over of 80 percent of total exports. Another example is the Democratic Republic of Congo (DRC), where mining accounts for 30 percent of GDP and generates 90 percent of total export earnings, according to the International Monetary Fund (2019 Article IV Consultation).

The challenge for the new currency mechanism will be to convince these countries to earmark a portion of their mineral reserves for the AUA.

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