When the central bank allows the purchase or sale of domestic currency to have an effect on the monetary base, it is called an unsterilized foreign exchange intervention.
This method of thinking is seen as passive to changes in the currency rate because it allows for changes in the monetary basis.
Central banks do not adopt insulating measures when they carry out unsterilized foreign exchange intervention. As a result, the transaction is unbalanced and simply involves the purchase or sale of money or other assets. The strategy permits the operation of foreign exchange markets without affecting the supply of domestic currency. This implies that a nation's monetary basis is flexible.
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