Sterilisation – the sale of domestic securities to mop up the excess liquidity generated by official intervention in foreign currency markets – is not merely feasible, but even highly profitable, if one is prepared to ignore the risk of a large ultimate capital loss. In the very long run, the spending generated by low domestic interest rates is indeed likely to produce excess demand and inflation, particularly if the economy and the financial system are liberalised. But there is little sign that this is at all imminent.

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