The currency trap: Why climate finance isn’t reaching the Global South

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The world is pouring trillions into climate finance. Or so the pledges suggest. Yet, when you trace the flow of funds, barely a trickle reaches the developing countries most exposed to climate catastrophe. Less than 15% of total climate finance finds its way to emerging markets; Africa receives under 2%. The rest stays where it feels safest: within the fortress of hard currencies.

This is not a failure of will. It’s a failure of design. The architecture of global finance, built on the scaffolding of the dollar and the euro, was never designed to serve economies where currencies can collapse by half within a year. Exchange-rate risk, the silent killer of emerging market investment, is suffocating climate action in the Global South.

The elephant in the finance room

Every green fund manager in London, New York, or Brussels knows the story. The demand for adaptation in Lagos, Lusaka, and Lilongwe is urgent, and there are projects ready to be deployed. But investment stalls. Not due to doubts about solar panels or resilient infrastructure, but because no one can hedge against a 50% currency depreciation.

Over the past decade, the Nigerian naira, Ghanaian cedi, and Zambian kwacha have each lost more than half their value against the U.S. dollar. This makes financing long-term, local-currency projects almost impossible. A $10 million investment in 2015 may now require $20 million simply to maintain purchasing power, not due to mismanagement, but because of national economic fragility.

The result is paralysis. Local developers cannot borrow affordably. Foreign investors cannot take the risk.

Old tools, new problems

To their credit, development finance institutions have tried to bridge this divide. They have experimented with hedging facilities, blended finance vehicles, and concessional debt. Yet these tools, designed in the 20th century, are failing in a 21st-century crisis.

Hedging mechanisms, where available, are expensive and short-term. Blended finance models are bureaucratic and still rely on dollar-based pricing. Even subsidized DFI loans are too small to transform markets and too costly to be sustainable. For every dollar of concessional funding mobilized, an estimated five dollars of private capital remain sidelined.

In other words, the system is clogged.

A digital workaround

A new solution is beginning to emerge from an unexpected source: Distributed Ledger Technology (DLT). More specifically, the creation of Emerging Market and Developing Economy (EMDE) stablecoins. These are digital tokens pegged to local currencies but backed by both hard assets or reserves and local assets or income streams.

Unlike cryptocurrencies, which are speculative, these stablecoins are designed for stability and transparency. Each token represents a claim on a mix of hard-currency assets and local, income-generating projects. Transactions are recorded on distributed ledgers, creating an immutable, auditable trail of cash flows.

This approach decouples project risk from country risk. Instead of lending to “Kenya,” investors can lend to a “housing project in Nakuru,” confident that their exposure is tied to the project’s performance, not to the Kenyan Shilling’s fluctuations.

From country risk to project risk

The transformation is subtle but profound. Investors are no longer hostage to the fiscal credibility of an entire nation. They are backing individual projects with verifiable, real-time data.

In practical terms, this could mean that a solar microgrid in Nigeria or a rent-to-own affordable housing development in Mozambique becomes investable, not because the country’s credit rating has improved, but because its performance data are visible and its cashflows are predictable.

By building micro-ecosystems of trust, EMDE stablecoins allow climate finance to flow into projects once deemed uninvestable.

Why this matters

For investors, the rewards are threefold:

1. Stability: Exposure to local projects with returns anchored in hard currency.

2. Transparency: Immutable data on project performance and impact, thereby reducing risk.

3. Impact: Direct investment into the communities most affected by climate change.

For governments, the benefits are equally compelling. Stablecoins can deepen local capital markets, encourage domestic savings, and reduce dependency on foreign debt. For communities, they unlock affordable finance for all types of projects, such as affordable housing, clean water, and renewable energy, sectors that define climate resilience.

The currency revolution

This is not a speculative fantasy. Global payment giants such as Visa are already exploring tokenized finance for on-chain lending. Stablecoins like USDC and EURC have processed over $20 trillion in transactions, and regulators from Brussels to Brasília are now drafting frameworks to harness their potential safely.

For the Global South, this could be the beginning of a quiet revolution, one that moves climate finance from pledges to projects.

A call to action

Currency risk is not an act of God. It exists because of the national and financial systems designed by man. This means solutions can be designed by man. Such solutions require will, innovation, and courage from investors, policymakers, and technologists.

Those who know that nature does not respect borders and are serious about climate change can stop treating currency risk as the reason for inaction and start seeing it as an invitation to innovate. 

Distributed Ledger Technology will not plant trees, build homes, or save the planet. But it may, finally, allow the investment to do so.

illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.

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