A Central Bank, such as the Fed, wants to lower the FX rate for its country relative to its trading partners and do a sterilized intervention, and engages in open market operations to purchase $500 million in foreign assets from the non-bank public. To avoid an unintended increase in the country’s money supply, the Central Bank engages in a sterilized intervention by selling $500 million in government securities to the non-bank public.
Using the Central Bank’s balance sheet show each of the effects for the two steps of the sterilized FX intervention on the Central Bank’s assets and liabilities and the net effect on the monetary base.