Introduction
The BRIC nations, made up of Brazil, Russia, India and China have been projected to be the world emerging economic powers. These countries account for close to half the world’s population. In recent times, the BRIC nations have contributed to most of the world’s GDP growth. These nations have been regarded as powers to watch as regards to world economic growth. These countries have not only been observed to be emerging economic powers but have also shown signs of gaining control of the world economy. These emerging nations have an advantage over other nations of the world in that they have enormous resources in terms of land and population. Statistics indicate that these countries occupy about 25 % of the world while they hold close to 40% of the world population. According to their projections dated 2050 into the future, these countries are expected to be the leading powers by then.
China and India are expected to be the powers leading in exportation of manufactured goods. Brazil and Russia have expressed the desire to be the leading economies in the supply of commodities. The significant power behind the BRIC might is China. China has continued to show great promise making the goals realistic. In the past three decades China has shown significant and steady economic growth averaging about 8% GDP per year. The economy has developed up to tenfold since then. China is expected to be the world leading economy in the current century making the BRIC countries potential powers. These four nations have made massive investment in numerous areas such as governance, infrastructure and global social programs. This has always kept them a step ahead among other emerging powers. Their entity as a bloc of powerful nations has enabled them to form a political pact and work together.
However, as the economy of individual nations in this block grow, future times will see most of them seceding from the block and becoming more autonomous. This is due to the fact that the nations forming BRIC have different development setbacks as well as strengths. The block is thus considered an essential pact that is likely to fuel rapid development. Be it as a block or as autonomous nations, these nations continue to outgrow their fellows and emerge as the leading powers in the world’s economy. China has emerged recently as leading the pact and being the most likely determinant of the dimension of their economic future. Contrary, Brazil has been viewed as the most developed among this pact. It has been observed to be the slower developing among the four nations of this pact.
Double-digit inflation has been recorded historically to be a major setback on economic development on many developing and emerging nations. However, the monetary authority in these nations continue to maintain a monetary policy that stimulates economic growth. The BRIC nations boast of their might in labor and thereby need major investment in various areas such as infrastructure to ensure economic growth. Considering the fact that these nations are developing way below their estimated level of output, monetary policy will be essential in encouraging private investment other than working to stabilize the economy. Monetary policy plays a crucial role in the economies of emerging powers under the bloc labeled BRIC. The major concern of the monetary policy in these nations is to ensure price stability and encouraging adequate credit expansion so as to ensure growth of their economy.
Putting in comparison the monetary policy rules used by china, the interest rate rule and the money supply rule in a model described as equilibrium in general, the price rule will most likely be important in the management of macroeconomics. This will be in the same tune with the government’s intention to liberalize interest rates and taking advantage of that tool in development. Researchers also confirm that the interest rate failed to respond adequately to the inflation that rocked china. The same case applies to Russia in which monetary aggregates were the most significant factor in determining inflation of which the central bank of Russia used as the major policy instrument.
The following provides a summary review of the monetary policy and its conduct in the BRIC nations.
Brazil
Despite the fact that the Brazilian Central Bank is not completely autonomous from the government, it is considered to be having de facto independence from the Brazilian government. July 1994 saw the Brazilian government introducing the Real Plan regarded as a very radical monetary policy that achieved bringing down the inflation rates down rapidly. This was a major step in defining the economic dimension of Brazil that has shown signs of rapid growth since then. However, weeks after implementation of this plan, there was dramatic appreciation in the rate of nominal exchange.
Brazil developed two different monetary policies since the stabilization of prices. (I)A soft peg that began in 1995 and lasted to 1998 that was marked by stable rates of exchange and fragile rates of interest. (II) From January 1999, ‘floating of the real’ which marked a target on inflation starting July the same year. In this policy, the rates of interest were more stable but lower while the exchange rate was majorly volatile. The monetary policies introduced have ensured transparency while at the same time preventing transient inflation situations that eventually lead to permanent inflation.
Russia
The collapse and disintegration of Soviet Union nations did not translate to the immediate introduction of a monetary authority. Up to three years later, the former members of the Soviet Union were still using the Central bank. The monetary policy began to take shape in 1993. However, in the beginning, it was limited due to the need to counter the huge budget deficit that existed. 1995 marked the stabilization of the Russian economy prompting the Bank of Russia gain significant autonomy. This enabled it to invent a strict monetary policy. By 2000, the main aim of the Russian central bank, was to reduce inflation to a significant figure of about 18% and to have a growing annual GDP of 1.5%. Pressure later mounted on Russia’s monetary policy due to its unwillingness to the strength of balance payments.
In recent times, Russia has put great emphasis on the stabilization of exchange rates. The Russian central bank has however anticipated the inflation risk that comes with such a measure. A lot of revenue budgeted for both gas and oil production has been held in the central bank due to the desire to allow for money supply expansion. The ’sterilization policy’ thereby introduced has led to inadequate funding of various major sectors of economic development such as manufacturing and infrastructure. The policy employed by the Russian Central Bank can be considered a double edged sword that comes with its disadvantages and setbacks on economic development. The only challenge remains, to find a way to increase the funding of technical and economic sectors.
India
The Reserve Bank of India has set various objectives. Among the major objectives are maintaining significant price stability while making sure credit expansion is sufficient to propel economic growth. These two main objectives have remained the same for close to two decades. However, the basic structure of the monetary policy has undergone significant change. In addition to the two objectives, the monetary policy has been applied to ensure maintenance of conducive conditions to avoid destabilization in foreign exchange.
Since 1980, the ‘broad money’ has become a major pillar due a stable interaction between prices, economic output and money. In 1998, the Indian Reserve Bank made major changes in its monetary policy. The main factors leading to transformation of the monetary policy include the dissociation of automatic monetization from deficits in the budget. The other reason was due to financial markets development. With many acts adopted by the government, the Indian Reserve Bank has gained significant autonomy from the government.
China
When compared with other developed nations, the monetary policy adopted by China appears more complex. The Peoples’ Bank of China has a binding law that spells out that the main aim of the monetary policy is to ensure price stability while promoting growth of the economy. The bank is also entrusted with the authority to ensure payment equilibrium and maximize employment. China also applies a mechanism that ensures application of measures on both price and quantity different from other developed nations that employ only one instrument in this context. Recent times have seen the basic structure of the monetary policy transform from using a single instrument which is quantity based to a system that incorporates both instruments including instruments that base on price. Despite having a complex monetary policy structure, China has effectively applied in in dealing with inflation and world economic crises. This effective monetary policy has seen china emerge as one of the powers to contend with in the world in terms of economic might.
Long term economic goals
Development and adoption of use of renewable energy
This is viewed as a major interest of all countries in this pact. Members of BRIC aim at championing for the use of third and second generation renewable energy sources so as to achieve sustainable development while protecting the environment. Energy is a basic resource in the improvement of living standards and economic development. These countries aim at developing cleaner and renewable sources of energy to avoid depletion of non-renewable energy sources. This is aimed at ensuring diversification in the use of energy sources. Industrialization of many countries has in the recent past has increased the demand for energy. This has led to these countries exploiting these energy resources. The world countries have often put pressure on fossil fuel as a source of energy. The BRIC countries have put in place long term goals to ensure alternative sources of energy are utilized by focusing majorly on renewable sources of energy.
Donor funding for African countries.
The BRIC nations are keen on becoming the next economic power to advance funding and grants to African countries. This funding is aimed at improving relations. Improved relations with African countries will expand the market for commodities from the BRIC countries. BRIC nations, especially china has moved to make major financial funding in Africa and other third world countries. In the past, funding of the African countries have been dominated by the Western nations such as the United States and Britain. This has enabled these countries gain economic advantage in sourcing for markets for their commodities. This has prompted the BRIC countries to put in place measures to ensure domination of global funding of third world countries.
Change and transformation of IMF and World Bank
BRIC nations have continued to see the necessity to transform global organizations such as the World Bank and the International Monetary Fund. There has also emerged a great need to ensure the regulation of these global institution so as to deter another economic crisis in the future. The BRIC countries have continued to seek the representation of developing countries in World Bank processes and decisions. There have also been plans to increase the funding to the lending arm of the World Bank. Transformation of global financial institutions will see the countries under BRIC have say on some decisions that influence world economic trends. Developing countries have missed out on these crucial economic decisions on financing since they have been dominated by developed western countries.
Reform of financial systems
BRIC nations have continued to champion for reforms in the global financial institutions. These emerging countries have demanded more say in global financial institution to enable them determine crucial financial decisions that affect the global economy. This is seen as a measure to ensure the streamlining of the global financial lines to provide a conducive environment towards the development of developing and emerging nations
Similarities between BRIC countries
Economic development
The block is made up of four developing countries proving to be powers to contend with in future world economic might. All the countries in the pact labeled BRIC have economies that are improving at a very fast and steady rate. They have all been considered rapidly developing countries. China has shown rapid development among these members with Brazil showing the least relative improvement when compared to the rest. These countries have recorded the most rapidly growing GDPs when compared to developed economic powers today. The rapidly growing economies was one of the reason behind coming together of these nations into a pact. However, there is a slight disparity in economic development with some members such as Brazil recording a slightly slower but steadily rising GDP.
Geography
The BRIC countries boast of being the largest countries in the globe. All the countries in this block occupy a significantly large portion of their continents with Russia being the largest, occupying 17 million kilometers squared. The sizes of these nations have given then strategic advantage allowing them to gain control of major resources improving their economic development. Geographical advantage has continued to play in the favor of economic development of these nations.
Population
The countries under this outfit have the most population compared to other countries in the world. In fact, it has been suggested that the members of BRIC hold close to 40% of the world population. This proves the fact that these countries boast the largest population with each contributing a significant number. The population of any country has great impact on the economic development of that nation. Large populations stimulate economic development by providing labor and a significant percentage of the market for manufactured goods. This explains the economic advantage boasted by these countries.
GDP
The countries under this umbrella all show a dramatically improving GDP. These countries that form the BRIC boast of GDPs different from those of developed countries in the world.
Works Cited
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Bhargava, Vivek, Dania Akash and D.K. Malhotra. "Covered Interest Rate Parity among BRIC Nations." Journal of Business and Economic Studies 17.1 (2011): 137-149.
Chaffee, Eric C. "Dodd-Frank Wall Street Reform and Consumer Protection Act: A Failed Vision for Increasing Consumer Protection and Heightening Corporate Responsibility in International Financial Transactions." American University Law Review 60.5 (2010): 1431-1447.
Jain, Subhash C. Emerging Economies and the Transformation of International Business: Brazil, Russia, India and China (BRICs). Cheltenham, UK: Edward Elgar Publishing, 2006.
Jason, P. Infrastructure fuels growth in BRIC countries. 04 November 2012. http://www.globalsherpa.org/infrastructure-development-china-india-brazil. 11 December 2013.
