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I presume that there is at least the possibility that some event could cause the trade to go the other way and BCB would make money instead of losing money
Indeed, from the FT:
And of course there is a cost. If the swaps are successful - and a central bank working paper [PDF] published in July 2013 suggests they often are - then the bank may even make a profit on them. But what if the real continues to slide, in spite of the central bank's heavy weaponry? The currency has shown some resilience since the panic went out of foreign exchange markets last September. But it has still weakened from R$1.95 to the dollar last March to about R$2.35 today. Every time its swap contracts go against it, the central bank - or rather Brazil's national treasury - takes a hit.
the problem becomes one of keeping profits made from this swap by Brazilians from being used to buy US$s. I suppose it depends on how long the BRL continues to depreciate wrt the US$.
That's why I say in the diary:
the only effect I see from the swaps in case of a deterioration of the exchange rate is an increase in the domestic money supply in reals. This will just add to the demand for dollar assets, putting even more downward pressure on the real which is exactly the opposite of the intended effect
Perhaps I should say "the only immediate effect", as the discussion with JakeS illustrates that there are domestic stability problems associated with increasing the gross amount of foreign-denominated or index-linked liabilities in the system.
Assuming that the events of the World Cup and the Olympics bring lots of foreign currency into Brazil
and assuming that means the real starts appreciating again, then the currency-propping swaps will become profitable for the BCB.

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
by Carrie (migeru at eurotrib dot com) on Sun Jan 19th, 2014 at 06:29:51 AM EST
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