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Suppose the domestic sector's $ liabilities of -λL$φ come suddenly due. Because the external stability condition ρR$ > λL$ is being maintained, the BCB can settle the liability with the external creditors in exchange for domestic BRL debt. The result is
The subscript T is in case we want to be generous to the domestic sector and not index the new debt to the dollar exchange rate but just vaue it at the exchange rate at the time of the rescue. In that case, the stock of new debt might well be written as
But, in any case, to be able to rescue the domestic economy from its foreign entanglements, the swaps position is irrelevant. It is true that the swap legs indexed to the dollar are a potentially domestically destabilising after a "successful" external rescue.
A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
... Gersztein and Alday at BNP Paribas think a reasonable indication of the cost is to net out the central bank's short dollar position through currency swaps from its foreign reserves. After all, it is not only the stock of reserves but also the broader health of the Brazilian economy that affects its ability to pay its debts.
That is something investors may wish to keep a close eye on if, as widely predicted, the real continues to weaken and Brazil's fiscal position continues to deteriorate during 2014 and 2015.
I suppose that's the point the FT article is trying to make.
Clumsily and without focus. It appears the BCB is attempting to manage currency by playing with financial markets (which it can do) instead of dealing with the actual foundation of the currency, the domestic economy (which it can't), and is doing so with the acquiescence of the government, which doesn't want to deal with the economy either. Which supports your conclusion that they are simply manipulating money for the benefit of the moneyed.
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