Template-Type: ReDIF-Paper 1.0
Author-Name: Alexey Ponomarenko
Author-Email: PonomarenkoAA@cbr.ru
Author-Workplace-Name: Bank of Russia, Russian Federation



Title: Do sterilized foreign exchange interventions create money?

Abstract: When a central bank accumulates foreign reserves, there are two possible ways of balance of payments adjustment: 
(1) decreasing commercial banks’ net foreign assets and 
(2) decreasing the non-banking sector’s net foreign assets and/or increasing the current account surplus. 
In the latter case, money is created. It does not matter whether the central bank sterilizes the bank reserves that it supplied to the money market 
and prevents the interest rate change – money will be created anyway (although sterilization may prevent further money creation through credit extension). 
Our empirical analysis shows that for emerging markets the type (2) adjustment is more common than type (1). 
Therefore, the accumulation of foreign reserves is likely to create money even when sterilized (i.e. it does not lead to lower money market interest rates).


Length: 26 pages
Creation-Date: 2019-05
Revision-Date:
Publication-Status:
File-URL: http://cbr.ru/Content/Document/File/87569/wp40_e.pdf
File-Format: Application/pdf
File-Function:
Number:wps40
Classification-JEL: E51, E58, F31, G21.
Keywords: Money supply, credit, foreign exchange interventions, foreign exchange reserves, emerging markets.
Handle:RePEc:bkr:wpaper:wps40