The term "emerging market" frequently appears in economic news and discussions, especially when talking about currencies. Are you familiar with this term? Emerging markets typically refer to countries that are developing or those with per capita income moving toward a middle level.
However, the meaning of "emerging market" has evolved. It now encompasses not just developing countries but also those experiencing significant industrial growth and economic expansion. Some of the most well-known emerging market countries are Brazil, Russia, India, China, and South Africa, collectively known as BRICS. Let's discuss the currencies of these countries one by one.
Brazilian Real (BRL)
The Brazilian Real (BRL) is one of the most frequently traded currencies in the forex market, ranking among the top 20 most popular currencies. BRL is usually traded in pairs with the Euro (EUR/BRL) or the US Dollar (USD/BRL). Brazil is categorized as an emerging market because its economy heavily relies on the export sector, particularly to China, the United States, and Argentina. Brazil's main export products include iron ore, soybeans, coffee, and automobiles. In 2018, Brazil's Gross Domestic Product (GDP) reached USD 3.365 trillion.
However, the BRL exchange rate has depreciated from 3.1 per USD in August 2016 to 4.1 per USD1 currently, due to national debt crises, declining commodity prices, and domestic political instability.
Russian Ruble (RUB)
The Russian Ruble (RUB) is often traded in pairs with the Euro or US Dollar (USD/RUB). The Ruble is known as one of the most volatile currencies in the world, making it attractive to traders looking for substantial gains from extreme price movements. Russia's economy began to recover after the collapse of the Soviet Union in 1991, particularly with increased oil and natural gas exports to the European Union, China, and Japan. In 2018, Russia's GDP was recorded at USD 4.213 trillion.
The Ruble's exchange rate is heavily influenced by crude oil prices and economic sanctions from the US and the EU. For example, the global sell-off of WTI Crude Oil in 2015 caused the RUB to depreciate by 42% against the USD within four months.
Indian Rupee (INR)
The Indian Rupee (INR) is commonly traded against the US Dollar (USD/INR). The Indian government implements a managed floating policy, meaning the Rupee's exchange rate is controlled not only by open market transactions but also by the Reserve Bank of India (RBI). In mid-2019, India's GDP reached USD 11.468 trillion, with the service sector contributing 45% of the total GDP.
India's economy is also supported by the agriculture sector and oil exports, mainly to trading partners like the United States, the United Arab Emirates, Hong Kong, and Saudi Arabia.
Chinese Yuan (CNY)
The Chinese Yuan (CNY) is the eighth most frequently traded currency in the forex market and ranks first among other emerging market currencies. The Yuan is typically traded in pairs with the US Dollar (USD/CNY). Although China is still considered an emerging market, it has the largest labor force in the world and is the second-largest exporter of machinery. In 2018, China's GDP reached USD 27.3 trillion.
However, the trade war between China and the US since 2018 has impacted the Yuan's exchange rate. At one point, the Yuan dropped by 1.2% to a level of 7.0275 against the US Dollar after the People's Bank of China (PBoC) lowered its reference exchange rate. Currently, the USD/CNY exchange rate is around 7.15 per 1 US Dollar.
