The offsetting of international reserve flows by central banks that wish to follow an independent monetary policy is known as:
A) Printing money
B) Balancing the official settlements
C) The monetary approach
D) Sterilization

Question

Quizplus · Accepted Answer

Sterilization refers to the actions taken by central banks to neutralize the effects of foreign exchange intervention on the money supply. It involves the purchase or sale of financial assets in the domestic market to offset the impact of inflows or outflows of foreign currency. By doing so, central banks can maintain their monetary policy objectives without causing inflation or deflation from excess or shortage of liquidity. A and C are incorrect as they do not specifically refer to offsetting international reserve flows. B is incorrect as it is a general term that can apply to any transactions between countries that involve payments or receipts in a common currency.

The Offsetting of International Reserve Flows by Central Banks That