Intervention in the Foreign Exchange Market - Bank of Canada: "If the government and the Bank want to moderate a decline in the relative price of the Canadian dollar, the Bank buys Canadian dollars in foreign exchange markets in exchange for other currencies, mainly U.S. dollars, which come from the Exchange Fund Account. This boosts demand for Canadian dollars and helps support the dollar’s value. To make sure that the Bank’s purchases do not take money out of circulation and create a shortage of Canadian dollars, which could put upward pressure on Canadian interest rates, the Bank “sterilizes” its purchases by redepositing the same amount of Canadian-dollar balances in the financial system."
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