according to CFAI
If your developing country’s inflation is higher than that of US, to make currency stronger, you, as a policy maker in the developing country would decrease the money supply by selling foreign currency reserves and buying your own currency.
And if you do this apparently Money supply will be reduced and this will increase short-term interest rates. But what I don’t get is why would buying your own currency and selling foreign currency reserves decrease your money supply? wouldn’t buying your own currency (eg through open market operation) increase money supply?
I am left befuddled
