Sterilization

noun (uncountable); also 'sterilisation' (British spelling)

/ˌstɛrɪlaɪˈzeɪʃən/

A central bank operation that neutralises the domestic monetary impact of foreign-exchange interventions — specifically, offsetting the liquidity injected when purchasing foreign currency by conducting open-market operations (OMOs) that drain an equivalent amount of domestic money. When the RBI buys dollars to prevent excessive rupee appreciation, it releases rupees into the system; sterilisation 'mops up' those rupees by selling government securities, preventing inflationary money-supply expansion.

✍️ Usage in a UPSC answer

The RBI's Market Stabilisation Scheme, created in 2004 following the Jaswant Singh–Bimal Jalan accord with the Finance Ministry, allows sterilisation of capital-inflow-driven liquidity surpluses by issuing special MSS bonds that lock excess rupees out of the monetary system.

Synonyms

monetary neutralisationliquidity absorptionoffset operationreverse repo (partial synonym)

Antonyms

unsterilised interventionmonetary expansionquantitative easing

🌱 Word Family

sterilise/sterilize (verb), sterilised (adjective), sterilisation (noun), Market Stabilisation Scheme (related proper noun), unsterilised intervention (antonymous phrase)

🔡 Root

Latin sterilis = barren, infertile; -ize (make) + -ation (process); monetary metaphor: making the liquidity impact 'barren' or inert

📜 Etymology

The agricultural/biological metaphor of rendering something barren or inactive was applied to central banking in the 20th century to describe the process of neutralising the monetary effects of foreign-exchange operations. The concept became critical after the Bretton Woods breakdown (1971) as central banks increasingly intervened in forex markets. India's RBI adopted large-scale sterilisation through the Market Stabilisation Scheme (MSS), created in 2004, specifically to sterilise the massive capital inflows of the early 2000s.

🧠 Memory Hook

Think of a doctor STERILISING a wound — killing unwanted organisms. The RBI STERILISES the excess rupees injected during dollar-buying — killing the inflationary organism that those new rupees would otherwise breed. MSS bonds are the antiseptic.

💰 Indian Economy 📖 Seen in: Indian Economy — Growth, Planning & De...

Tip: press Alt+S to hear pronunciation