If a central bank sells $10 million in foreign exchange reserves, sterilizing its intervention requires ____________ in domestic credit in order to _________ the monetary base.

Question

Quizplus · Accepted Answer

Sterilizing a foreign exchange intervention involves offsetting any impact on the monetary base to leave it unchanged. If a central bank sells $10 million in foreign exchange reserves, it would need to increase domestic credit by $10 million to offset the decrease in the monetary base from the sale, thus leaving the monetary base unchanged.

If a Central Bank Sells $10 Million in Foreign Exchange