Unsterilized Foreign Exchange Intervention refers to a central bank's purchase or sale of a country's currency in the foreign exchange market without taking offsetting actions to neutralize the impact of these transactions on the money supply.Unsterilized intervention occurs when a central bank buys or sells its own currency in the foreign exchange market in order to influence its exchange rate. For example, if a central bank wants to weaken its currency, it would sell its own currency and buy a foreign currency. If a central bank wants to strengthen its currency, it would buy its own currency and sell a foreign currency.The impact of unsterilized foreign exchange intervention on the money supply depends on the country's monetary policy framework. In a flexible exchange rate regime, unsterilized intervention will result in an increase or decrease in the money supply, depending on whether the central bank is buying or selling its own currency.In contrast, in a fixed exchange rate regime, unsterilized intervention can result in the central bank having to continuously purchase or sell its own currency in order to maintain the fixed exchange rate, which can lead to a buildup of foreign exchange reserves or a depletion of foreign exchange reserves, depending on the direction of the intervention.In conclusion, unsterilized foreign exchange intervention refers to a central bank's purchase or sale of a country's currency in the foreign exchange market without taking offsetting actions to neutralize the impact of these transactions on the money supply. The impact of unsterilized intervention on the money supply depends on the country's monetary policy framework, and it can result in an increase or decrease in the money supply or a buildup or depletion of foreign exchange reserves.
