Calculated from World Economic Outlook Database, April 2018, IMF.
Table 3:Exchange rate and monetary policy regimes in BRICS countries.
| Exchange Rate Arrangements | Monetary Policy | |
| Monetary Aggregate Target Framework | Inflation Targeting Framework | |
| Other Managed Arrangement | China | — |
| Floating Exchange Rate | — | India, Brazil, South Africa |
| Free Floating | — | Russia |
Source: IMF (2016).
Exchange Rate Regime
A related issue in this context is the choice of exchange rate regime in these countries. The IMF’s exchange rate classification system groups India, South Africa, and Brazil under the floating exchange rate regime while that of the Russian ruble is branded as free floating (Table 3). Although Chinese RMB is classified by the IMF as ‘other managed arrangement’, China has been seen widely as a currency manipulator by the global community. A recent report of the US Treasury commented:
“(A)fter engaging in one-way, large-scale intervention to resist appreciation of the renminbi (RMB) for a decade, China’s recent intervention in foreign exchange markets, tightened capital controls, and increased discretion over setting the daily fixing rate of the RMB have likely prevented a disorderly currency depreciation that would have had negative consequences for the United States, China, and the global economy” (US Treasury, 2017).
Exchange rate movements are reflected in Table 4. While both South African rand, and Indian rupee showed two-way movements, the Russian ruble has bouts of instability. Of late, Brazilian real too showed volatility. The Chinese yuan after remaining almost constant for a long time started appreciating slightly during 2006–2013; since then, however, it has stared depreciating.
Table 4:Exchange rate movements and current account balances in BRICS countries.
Note: For the purpose of calculating exchange rate movements, exchange rates have been calculated with the home country’s currency as the numeraire; e.g. in calculating Yuan’s exchange rate, it is expressed as USD per one RMB.
Source: Calculated from exchange rate data available from Federal Reserve Bank of St. Louis (https://fred.stlouisfed.org).
A key difference between these economies is the extent of current account balance. Three countries, viz., Brazil, India, and South Africa, have been consistently having current account deficit since 2008. China and Russia, on the contrary, have been experiencing current account surplus. Of course, in case of Russia the extent of current account surplus has come down in tune with fall in oil prices. In the case of China too, the amount of surplus has come down since the global financial crisis and associated efforts toward ‘rebalancing’, whereby China has been repeatedly counseled by the global community to increase its consumption and reduce savings.6 Former US Fed Chairman Ben Bernanke is the chief exponent of this view, who in a lecture delivered Chinese Academy of Social Sciences in 2006 commented,
“China today is running substantial trade and current account surpluses. These external surpluses are caused in part by China’s remarkably high saving rate. Because China’s national saving rate is even higher than its rate of domestic investment, the country has excess funds to lend in the global capital market; it follows from the balance-of-payments accounts that China’s net lending abroad (or its acquisition of foreign assets) equals the country’s current account surplus. A large portion of this lending finances foreigners∈ purchases of Chinese net exports (the trade surplus). High household saving and the corresponding low level of consumption in China contribute to the trade surplus by depressing the demand for imports and by forcing domestic firms to look abroad for markets” (Bernanke, 2006).
This has profound implications for the trade cooperation among the BRICS countries.
Fiscal Policies
The heterogeneity is reflected in fiscal positions of the governments as well. Depending on oil prices, Russia has been the only economy in this block that had experienced fiscal surplus during the first of the first decade of 2000s (Figure 4(a)). The fiscal situation seemed to have deteriorated both in South Africa and China; India continued to remain at the bottom in terms of general government borrowing. While public debt has not been a cause of concern in all these five countries, due to presence of petroleum resources Russian debt is least among them (Figure 4(b)). In terms of a timeline, Brazilian fiscal policy is often tracked in terms a shift from a period of fiscal consolidation (1999–2005) to a phase of fiscal expansion (2005–2014) (Octavio and Gobetti, 2017).
Figure 4:Fiscal position in the BRICS economies.
Source: Calculated from World Economic Outlook Database, April 2018, IMF.
Foreign Trade
What has been the pattern of foreign trade in these countries? We have already seen that in terms of current account balance, China and Russia are the surplus countries while India, Brazil, and South Africa are deficit ones. Thus, there is a differing degree of openness among these countries. Illustratively, while the rank of China in terms of merchandise exports is first, the closest next Russia is at seventh (Table 5).
As a group, while BRICS account for roughly one-fifth of global exports, its share in global imports is about 15%. But China alone accounts for nearly 14% of global exports and 10% of global imports. This disproportionately higher share of China in global trade has its implications. Who are the major trading partners of BRICS? More importantly, among the BRICS countries while China appears to be among the top five export destinations for all the BRICS countries no other BRIC countries are in the top five export destination, implying that trade relations among the BRICS countries is hugely dominated by China (Table 6). Interestingly, China also dominates for all the countries’ import destination as well (including China, because of round tripping from Hong Kong). This dominance of China in trade relations almost makes the BRICS group as a sub-loop where all the four countries are in one group and China in another. In fact, there are adverse implications of this supremacy of China even within the BRICS block. Illustratively, there are reports of India banning select items of Chinese imports and Chinese officials terming such acts as reflective of Indian jingoism (Hindustan Times, 2016).
Table 5:Trade profile of BRICS economies.
Source:
