Note that the decrease in money supply occurs initially
in the foreign currency In the process of conversion of the foreign currency into the domestic currency, there may pressure put on the foreign currency to depreciate also. The decrease in the monetary base and the excess supply in foreign bonds caused by the sale by the authority lead to reduced demand for foreign bonds, so foreign bond prices fall in terms of the domestic currency value. The domestic currency appreciates or the exchange rate decreases while the demand for foreign bonds, as well as foreign bond prices in terms of the domestic currency value,