In an effective currency sterilization operating bank reserves will increase after a currency is purchased and decline after currency is sold.

Question

Quizplus · Accepted Answer

In an effective currency sterilization, the central bank neutralizes the impact of its interventions in the forex market on the domestic money supply. When it purchases foreign currency, it typically sells domestic bonds to offset the increase in bank reserves, and vice versa when it sells foreign currency, it buys domestic bonds to prevent a decrease in bank reserves.

In an Effective Currency Sterilization Operating Bank Reserves Will Increase