Nonsterilized intervention

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Nonsterilized intervention

Taking an action in the foreign exchange market without adjusting for changes in money supply.

Nonsterilized Intervention

A central bank's attempt to influence exchange rates by refusing to buy or sell assets or currencies. This allows the money supply to change without interference of the central bank. See also: Sterilized Intervention, Floating Currency.
References in periodicals archive ?
Following Dominguez and Frankel (1993), recent research often discusses three channels of intervention affecting exchange rates: the monetary/interest rate channel (emphasizing non-sterilized intervention), the portfolio channel (emphasizing imperfect substitution of assets and sterilized intervention), and the signaling effect channel (emphasizing the perfect substitution of assets and sterilized intervention).
(in Japan, the process is called non-sterilized intervention.) The unintended consequence is that the world faces the potential for a subtle though nasty round of competitive currency devaluations.
Given the low level of interest rates, all tools at the BOJ's disposal, including non-sterilized intervention should be deployed.
Moreover, when the exchange rate market disturbance is neither domestic in origin nor monetary in nature, non-sterilized intervention conflicts with price stability.
Eventually these new institutions could grow large and end up under the insurance umbrella of the central bank (by the principle that they are "too large to fail"), recreating all the problems associated with non-sterilized intervention. Therefore, increasing marginal reserve requirements likely will not be effective beyond the short run.
Option (iii), non-sterilized intervention (the case of Argentina), runs the risk of generating a vulnerable financial system.
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