Sterilization

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Sterilization

A method by which a central bank may affect the value of the domestic currency relative to a foreign currency. To weaken the domestic currency, sterilization involves selling the domestic currency on the forex market and buying the foreign currency. This increases the supply of the domestic currency, while reducing the supply of the foreign. To strengthen the domestic currency, sterilization involves the opposite. A central bank usually conducts sterilization to counteract adverse changes to the domestic currency in foreign exchange markets.