The answer is when it is a swap between the US Federal Reserve and a foreign central bank under the famed swap lines. Last month, the New York Fed described the operational mechanics of these swap lines in considerable detail in its publication Current Issues in Economics and Finance:
The swaps involved two transactions. At initiation, when a foreign central bank drew on its swap line, it sold a specified quantity of its currency to the Fed in exchange for dollars at the prevailing market exchange rate. At the same time, the Fed and the foreign central bank entered into an agreement that obligated the foreign central bank to buy back its currency at a future date at the same exchange rate. ...
The foreign central bank lent the borrowed dollars to institutions in its jurisdiction ... And the foreign central bank remained obligated to return the dollars to the Fed and bore the credit risk for the loans it made.
At the conclusion of the swap, the foreign central bank paid the Fed an amount of interest on the dollars borrowed that was equal to the amount the central bank earned on its dollar lending operations. In contrast, the Fed did not pay interest on the foreign currency it acquired in the swap transaction, but committed to holding the currency at the foreign central bank instead of lending it or investing it. This arrangement avoided the reserve-management difficulties that might arise at foreign central banks if the Fed were to invest its foreign currency holdings in the market.
What this means is that the foreign currency (say, the euro) that the Fed purportedly receives under the swap is completely fictitious because (a) the Fed earns no interest on the euros and (b) the euros are not available to the Fed if it wishes to lend the euros to a US bank or for any other purpose. In fact, in April 2009, the Fed entered into a different swap agreement with the ECB and other central banks to obtain foreign currency liquidity. This would not have been needed at all if the original swap had been a genuine swap.
The so called swap is simply a loan of dollars to the foreign central bank. Why does the Fed want to call it a swap instead of a loan? I think the reason for this use (or rather abuse) of terminology is that a swap with a foreign central bank sounds politically more palatable than a loan to a foreign central bank. All the more so when the swap is for an unlimited amount!
This is another reminder that deceptive disclosure practices are not limited to companies like Enron or to sovereigns like Greece – they are all pervasive.