Beyond digital money: Henry Bruce’s ARU

A tanker of diesel leaves a refinery bound for Tema.

The buyer in Accra holds cedis, the seller wants dollars and the payment travels through a bank in New York or London that never sees the fuel.

Africa’s trade is paid for like this every day.

Intra-African trade is commonly put at around 15 per cent of the continent’s total and part of the reason is how costly it is to pay for.

Henry Bruce, a Ghanaian economist and commodity trader, believes the answer is not another digital currency. He has called it the African Reserve Unit or ARU.

Bruce has traded diesel and petrol in West African markets for about 22 years and has worked in central banking.

He has lived and worked in Scandinavia, Asia and the Gulf, and returned to Ghana with a PhD and a second master’s degree in finance and money.

His starting point is a complaint about the way money is discussed.

The world, he says, is full of digital this and digital that, but most of it is the same fiat money moving faster on new rails.

A faster pipe does not change what flows through it.

A dollar on a phone is still a dollar and Africa still depends on someone else’s reserves to settle its own trade.

A physical-commodity trader sees money in practical terms.

It is whatever a bank will accept and whatever lets a seller release the cargo.

In the structures Bruce has used, fuel is held in a tank under a collateral management agreement, supported by a letter of credit and released only against cash.

Bruce is quick to say what the ARU is not.

It is not a new national currency and it does not replace the cedi, the naira or the CFA franc.

People would keep paying wages, buying bread and paying taxes in their own money.

The ARU is a reserve and settlement unit for banks and trading companies, designed to sit above national currencies in the way the International Monetary Fund’s Special Drawing Right does.

Its weight comes from its backing. Each unit is tied to a fixed basket: 40 per cent gold, 35 per cent short-term US government securities, 15 per cent short-term euro government securities and 10 per cent another approved reserve currency.

The assets are held on trust by a trustee who is independent of the sponsor and changing the weights needs a supermajority, not one person’s decision.

Bruce has built three rules into the design, aimed at the failures that have undone other monetary projects.

The first is the backing rule. No ARU may exist unless the assets behind it are in the pool.

The ARU may not be used to finance a government, or the sponsor, by creating money to cover a gap in the budget.

Any access to ARU carries limits, collateral and a duty to repay.

The third is founder restraint, and it is the unusual one.

Bruce wrote the framework, and the charter limits what he, as sponsor, can do.

The founder may not issue ARU, touch the reserves, change the basket alone, or set his own reward beyond a cap.

Many founders hold on to control. Bruce has chosen to give some of it up in writing.

Bruce says he has run arrangements of this kind informally for about fifteen years.

What he is doing now is putting them in writing.

The documents include participation contracts for banks and companies, rules for collateral and settlement, and a draft charter.

He also has contracts for trades that use a standby letter of credit and a collateral manager.

The reasoning is simple. A system that works only because the people inside it trust each other cannot grow.

One with written rules that anyone can read, check and leave.

The first stage he proposes is private and trust-governed.

Traders and banks who already need to settle would post collateral, net their positions and report openly.

The main corridor is Nigeria to Ghana refined petroleum, with diesel first. If central banks later choose to join, the arrangement could become a treaty-based institution owned by the countries that use it.

An idea like this deserves hard questions and Bruce accepts them.

The first is proof. An informal record needs to be reconciled with the facts and checked by independent people.

Settlement and collateral touch banking, foreign-exchange and anti-money-laundering rules in more than one country.

The Bank of Ghana, the Central Bank of Nigeria and other regulators would need to be engaged, and their positions confirmed not assumed.

The third is scale. One diesel corridor is not a continent.

The rules must survive larger volumes, closer scrutiny and the day a participant fails to pay.

A founder’s restraint is only as strong as the people who enforce it.

Independent trustees, an independent auditor and published reserve reports are not decoration.

They are what makes the unit worth trusting.

Behind the technical detail is a question Africa has not finished asking.

The continent trades gold, fuel and cocoa every day, yet much of the money that moves them belongs to someone else.

Bruce’s answer is not a new flag on a banknote.

It is a backed unit with honest rules, owned by the people who use it, which does not pretend to be a national currency and cannot be used to avoid fiscal discipline.

Whether ARU becomes that depends less on its author than on whether banks, traders and, eventually, central banks decide to trust rules they can read, inspect and leave.

That is harder to build than an app or a token.

It is also what has always made money work.