Close-up on the currencies of the BRICS

In last week’s article we looked at who the BRICS countries are and why they are considered the world’s most significant upcoming economies. 

They all have high levels of productivity, large relatively young populations and are often manufacturing or production powerhouses. 

This week we’ll look at these countries’ currencies, how strong/weak they are and any recent developments.  To begin with, one of the biggest differences between the currencies of the G7 and the currencies of the BRICS is that most BRICS currencies are ‘restricted.’ 

This means that they are not floated freely on the international currency markets and therefore can’t be easily exchanged. Anyone who has been to Brazil, Russia, India or China will know the difficulty for example in accessing cash before getting on the plane. Many of these currencies are also subject to physical export controls meaning money (either in cash form or in bank transfers) literally cannot be removed from the country. 

Let’s look now at each country’s currency in turn starting with the Brazilian Real.

Brazilian Real (BRL)

The Real or Reais in its plural form, has been the currency of Brazil since 1994 when it replaced the Cruzeiro Real. At the time the Brazilian economy was undergoing significant structural transformations that in part are one of the reasons why the economy has become so successful today.

In the last survey by the Bank for International Settlements, the Brazilian Real was the 20th most traded currency and accounted for on average 1.1% of the daily volume of FX transactions.

Given the turbulence experienced domestically in Brazil in recent years, the Real has fluctuated heavily in value against major western currencies.

In the last 20 years it has seen on one end, a rate of $1USD- R$1.52 in the year 2010 and at the other, a value of $1USD- R$5.88 during the COVID-19 pandemic.

At present the Brazilian economy is facing severe economic difficulties and the Real has been rapidly losing value, despite slowly recovering from its weakest point in 2020, it has not made much ground recently still sitting at over R$5 for $1

Russian Ruble (RUB)

The Ruble has been the currency of Russia in one form or another for centuries.

Its present incarnation was introduced after the fall of the USSR at parity and was redenominated in 1998 following a vast financial crisis.

The fortunes of the Ruble are very much tied to that of the Russian government especially given the highly autocratic nature of the present-day Russian system.

For many years between 2000 and 2014, the Ruble was pretty stable fluctuating at between ₽28-₽38 RUB to 1 USD however following Russia’s illegal annexation of the Crimea, the currency began a downward slide. As sanctions bit, the average value sat at around ₽61 RUB to 1 USD and following the full-scale invasion of Ukraine earlier this year it hit at one point ₽150 RUB to 1 USD.

In the last month or so, the Ruble has now made up for its initial dramatic loss against the dollar owing to the invasion, therefore making it in theory 2022’s best performing currency. This headline though shouldn’t detract from the fact that just before the war the currency was still at around ₽60 RUB to 1 USD, a far cry from the days before it decided to interfere in Ukraine.

In the last survey by the Bank for International Settlements, the Russian Ruble was the 17th most traded currency and accounted for on average 1.1% of the daily volume of FX transactions.

The situation with the Ruble is highly fluid and likely to change at any time. Any number of actions taken by either the Russian government or their Western counterparts could set off another rapid change in the currency’s value.

Indian Rupee (INR)

The Rupee (INR) has been in use in India since the country gained its independence from the UK in the 1940’s. Even before that, a version of the Rupee was in use and the Rupee is thought to have been in use in one form or another on the continent for over 500 years.

In the last survey by the Bank for International Settlements, the Indian Rupee was the 16th most traded currency and accounted for on average 1.7% of the daily volume of FX transactions.

For the last 25 years, the Rupee has been dramatically losing value against the major western currencies. Ten years ago 1 USD was worth around ₹55, today it’s worth nearly ₹80. This is in large part due to India’s large trade deficit and high levels of public debt.

In recent weeks the Indian Central Bank has started to take strong direct action and many economists don’t foresee there being a long term problem. India remains on course to continue its astronomic growth and therefore short term currency issues are not given the same amount of attention as in western countries.

A considerable amount of the recent depreciation has been due to international crises beyond the countries control and therefore if and when the international situation calms, it is believed the INR will strengthen.

Chinese Yuan (CNY)

In the last 20 years, the Chinese Yuan or Renminbi as it is also known has been growing in international economic significance.

The total world foreign currency reserves of the Renminbi now sit at around 3% and have doubled in the last couple of years alone.

For much of China’s recent history, the Yuan was pegged to the US Dollar, but in 2005 China began to gradually allow the Yuan to appreciate against the dollar.

The value of the Yuan has been a controversial topic in recent years, with some accusing China of artificially devaluing the currency to make its exports more competitive. However, China has consistently denied these accusations, saying that it intervenes in the currency market only to prevent sharp swings in the value of the Yuan.

Renminbi has remained very stable against major western currencies. In the last 10 years, the value of one US dollar has always sat within the ¥6-¥7 range.

In the last survey by the Bank for International Settlements, Renminbi was the 8th most traded currency and accounted for on average 4.3% of the daily volume of FX transactions. We can expect to see this to have increased significantly when the next report is released this December.

South African Rand (ZAR)

The currency of South Africa is the Rand, which is divided into 100 cents. The Rand was introduced in 1961 after the country became a republic. Before that, the currency was known as the Pound.

The currency is also used in Namibia, Lesotho and Eswatini where there is a form of Monetary Union. The Rand can be used interchangeably locally therefore with the Namibian Dollar, the Lesotho Loti and the Swazi Lilangeni.

The Rand is a volatile currency and its value has been known to fluctuate rapidly. In recent years, the currency has been relatively stable against major currencies such as the US dollar and the Euro.

Unlike other BRICS countries, the South African Rand is a freely convertible currency and there are no restrictions on its purchase or sale.

In the last survey by the Bank for International Settlements, the Rand was the 18th most traded currency and accounted for on average 1.1% of the daily volume of FX transactions.

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