African countries have been urged to use their minerals resourced to control faltering local currencies against the major currencies, in a proposal similar to Ghana’s gold purchasing programme.
Ghana introduced an innovative idea a few years ago to significantly improve its gold reserves at the Central Bank, in order to use the reserves to back its currency, and also barter trade with the reserves, instead of using paying foreign exchange to pay for essential products like oil.
The AfDB, in a bold step transform Africa’s financial landscape, 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, which are in high demand globally as they are needed in critical sectors, especially energy transition.
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Africa, despite possessing a significant chunk of the world’s critical mineral reserves, attracts only a small share of global energy investments and the AfDB has blamed this on the continent’s unstable currency markets, leading to low flow of capital necessary to drive large-scale initiatives – a situation it believes the proposal can address.
The proposed minerals-backed currency is expected to deliver multiple benefits, including strengthening currencies and reducing the cost of capital for clean energy projects.
The propoal is also expected to help narrow the continent’s $400 billion annual funding gap.
The Ghana Example
Ahead of the AfDD’s proposal this year, Ghana had already taken the lead with its Bank of Ghana Gold Purchasing Programme.
The programme, which started in 2023, has significantly boosted Ghana’s Central Bank gold reserves from a meagre 8.7 tonnes to 37 tonnes now, thus giving the Ghana the space to strengthen it’s currency through its gold reserves, as the AfDB has proposed.
Through the programme, Ghana was able to pay for critical oil supplies with gold, instead of US Dollars, at a time the country’s foreign exchange reserve had declined.
Last week, the Governor of the Bank of Ghana also announced the Central Bank would be injecting about $1.5 billion through the Gold Purchase programme to back the Cedi.
The value of Ghana’s increased gold reserves, expert say, is in the billions, and gives the country significant financial space that would have been difficult to aquire in the financial market within such a short time.
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