The African Development Bank’s proposal for a currency backed by critical minerals – such as cobalt, lithium, and rare earth elements – has sparked both excitement and scepticism. This initiative, aimed at stabilising African currencies and attracting foreign investment, represents a radical departure from conventional monetary policies.

While Africa’s vast mineral wealth provides a compelling foundation for such a system, the success of this plan hinges on whether it can create genuine stability or simply introduce new vulnerabilities into Africa’s already fragile financial landscape.

At the heart of this proposal is a fundamental economic truth: currency stability is a prerequisite for long-term investment, industrialisation, and sustainable trade. Africa’s fragmented currency system – where over 40 national currencies exist, many of which are volatile and vulnerable to inflation – has long been a deterrent for investors.

Currency instability increases transaction costs, makes cross-border trade unpredictable, and forces African nations to rely on external currencies such as the US dollar, euro, or CFA franc for trade and reserves. A more stable African currency could, in theory, reduce this dependency and create a stronger foundation for economic sovereignty.

However, using mineral wealth as the basis for monetary stability is not without risks. Historically, commodity-backed currencies have shown both strengths and weaknesses.

Mineral prices are notoriously volatile, driven by global demand shifts, geopolitical tensions, and technological advancements. If the value of cobalt, lithium, or other backing assets fluctuates significantly, so will the stability of this new currency. This would be particularly damaging for African economies that are already struggling with external debt, weak fiscal buffers, and structural inefficiencies.

Moreover, the governance of such a currency raises critical questions. Who would control the reserves? Would it be a centralised pan-African monetary authority, or would individual governments manage their own mineral reserves? The success of any currency depends on institutional trust, and the history of currency crises suggests that building this trust will not be easy.

Another consideration is whether Africa should aim for monetary integration at all. While the idea of a single African currency has been debated for decades – echoing the European Union’s creation of the euro – monetary unions require deep economic alignment and political cohesion.

The euro succeeded because the European Central Bank (ECB) imposed strict fiscal discipline, harmonised regulations, and maintained strong oversight. Africa, by contrast, faces wide disparities in economic structures, inflation rates, and fiscal policies across its regions. Without deep fiscal coordination, a shared African currency could easily become a source of conflict rather than unity.

That said, the potential benefits cannot be ignored. A stable African currency backed by mineral wealth could strengthen the continent’s bargaining power in global trade negotiations. Africa supplies over 70 per cent of the world’s cobalt and a significant portion of lithium and rare earth metals – critical inputs for the clean energy transition.

Furthermore, such a currency could facilitate intra-African trade under the African Continental Free Trade Area (AfCFTA). One of the major barriers to regional trade is the cost and complexity of currency conversions.

If African nations shared a common currency backed by a tangible asset, intra-regional transactions could become more seamless, reducing reliance on the US dollar or euro as intermediary currencies.

However, an alternative approach might be more viable. Rather than attempting full monetary integration, Africa could focus on regional monetary blocs, allowing groups of countries with similar economic profiles to adopt a shared currency.

Additionally, African central banks could explore digital currencies backed by commodity reserves, leveraging blockchain technology to enhance transparency and accessibility while reducing risks associated with physical mineral reserves.

Ultimately, Africa’s quest for monetary stability must be driven by economic fundamentals, not just resource wealth. The success of any currency depends on trust, sound governance, and adaptability to changing economic conditions. While a mineral-backed currency offers intriguing possibilities, it is not a silver bullet for Africa’s financial woes.

For Africa to achieve true monetary sovereignty, the focus should be on strengthening fiscal discipline, reducing debt dependency, investing in industrialisation, and building robust financial institutions.

Stability comes not from what backs a currency, but from the strength and resilience of the economy behind it.