Central banks intervene in foreign exchange markets to smooth excessive volatility, maintain export competitiveness, or defend a currency peg. These market operations are divided into two main execution styles: Unsterilized Interventions and Sterilized Interventions.
Unsterilized Intervention Cascades
In an unsterilized intervention, the central bank buys or sells foreign currency assets against its domestic currency directly on the open market, allowing the transaction to expand or contract the domestic monetary base.
Central Bank sells foreign currency reserves -> Ingests domestic cash tokens -> Drains bank reserve deposits -> Domestic short interest rates rise

Sterilized Intervention Cascades
To shield the domestic economy from the interest rate changes triggered by FX operations, central banks use Sterilization:
[Central Bank Executes FX Currency Sale] ---> Drains Domestic Bank Cash Reserves
                                                         |
                                                         v
[Offsetting Secondary Open Market Action] <--- Injects Equal Volume of Liquidity
  - Central bank buys short-term domestic treasury bonds
  - Neutralizes net short-term domestic money market rate shifts
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