Definition – What does Unsterilized Intervention mean?
An unsterilized intervention refers to a situation where a nation’s central bank directly buys or sells its own currency. An unsterilized intervention is a clear attempt by a nation to influence the value of its currency. An unsterilized intervention is in contrast to a sterilized intervention, in which offsetting instruments are used to subtly influence currency rather than direct buying or selling.
An unsterilized intervention is also known as a naked intervention.
ForexTerms explains Unsterilized Intervention
An unsterilized intervention can have economic ripple effects that make it an unappealing option to central banks. The most obvious is that it affects the money supply, which can influence inflation, interest rates and other areas of the domestic economy. More importantly, a naked intervention is frowned upon by the international community as an unfair trade practice. Currency manipulation isn’t illegal – there is no world authority to enforce such a law – but it can draw the ire of trade partners and create other tensions.