Sterilization refers to actions taken by central banks
A) to neutralize the effects of balance of payments disequilibria on the money supply.
B) to increase gold inflows when there is a balance of payments surplus.
C) to decrease gold outflows when there is a balance of payments surplus.
D) to cause the exchange rate to appreciate or depreciate.

Question

Quizplus · Accepted Answer

Sterilization refers to the central bank's action of buying or selling domestic or foreign assets to offset the impact of foreign exchange market interventions on the money supply. This is done to maintain the stability of the exchange rate and neutralize the effects of balance of payments disequilibria on the domestic money supply. Sterilization does not directly relate to increasing or decreasing gold inflows or outflows, nor does it cause exchange rate appreciation or depreciation.

Sterilization Refers to Actions Taken by Central Banks