Sterilization (economics)

As a sterilized is known in the monetary policy of the central banks intervening in the foreign exchange market if this, in contrast to unsterilized interventions by appropriate accompanying measures does not change in the domestic money base result. Thus, the transactions entered into for the sterilization of the intervention must for the domestic market have a surgery opposite effect on the money supply.

For example, a central bank buys government bonds in the amount of X monetary units. You paid the government bonds with central bank money, thus increasing the monetary base to X ( an open market operation). In order not to alter the monetary base as possible (sterilization ) should be to tighten liquidity so as not to increase the money supply, the central bank to the same extent (= X monetary units ). This can, for example, done on the sale of other bonds of the Central Bank or on restricting the normal lending to commercial banks.

Another example of a sterilized intervention would be that the central bank buys foreign securities and domestic securities sold at the same time, in each case against the domestic currency. Thus, the money supply in the country remains constant while the external relationship currency devaluation takes place, which results from the change by engaging the supply and demand situation of the domestic and foreign securities. A complete decoupling of monetary policy can not be achieved by sterilization because the compensation on the interest rate structure effect.

For the specific effect on the exchange rate comes at sterilized intervention as a signal for the market, as investors align with sufficient credibility of the central bank their behavior to their actions. This expectation aspect has only a temporary effect, also has to maintain the credibility be ensured that the anticipated effect will really happen, what more - can make necessary measures - then unsterilized.

It's not scientifically proven that sterilized intervention is effective because there is no way to unambiguously determine how the foreign exchange market would have developed without intervention.

Partial sterilization during the euro crisis

While the euro crisis 2008-2012 ( SMP) government bonds by the European Central Bank ( ECB) on a large scale under the " Securities Markets Programme " bought. So were purchased between May 2010, and in October 2011 by the ECB almost 200 billion euros of government bonds of Greece, Portugal, Spain and Italy. These and subsequent monetary base increases, however, were at least partially sterilized.

An article by Sebastian Dullien and Heike Joebges, relying on data from the ECB monetary base, mentioned sterilization of about 50 percent of bond purchases from May 2010 to October 2011. Proverb, the monetary base increased by 50 % less than without countermeasures. Whether this inflationary pressure is still not clear, because the monetary base increase does not necessarily lead to an expansion of lending by the commercial banks.

Another bond purchase program is called by the ECB as " Outright Monetary Transactions" ( OMT). It was announced on 6 September 2012. Here bonds to be purchased with a remaining maturity of between one and three years in principle, unlimited in amount. Here, a complete sterilization is assured by the additional liquidity is deducted elsewhere in the monetary system again.

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