Unsterilized Foreign Exchange Intervention

When a central bank intervenes, say by selling its own currency to weaken it, it creates new domestic money to do so. In unsterilized intervention, it leaves that extra money in the system. The money supply grows, interest rates tend to fall, and the currency is pushed down even further.

In sterilized intervention, the bank soaks the extra money back up, usually by selling bonds, so only the exchange rate is targeted. Unsterilized intervention is more powerful, because it changes monetary policy too.