This paper focuses on finding out about what extent the Central Bank sterilizes the effect of changes in net foreign assets on domestic monetary base and if such sterilization results equal and opposite changes in net foreign assets using monthly data from 1982M1 to 2013M2. We find that the Central Bank partially sterilizes its foreign exchange operation. However, the Central Bank’s foreign exchange interventions results equal and opposite changes in net foreign assets which is consistent with perfect substitutability between domestic and foreign assets. This implies that monetary authorities in Pakistan are not independent in formulating an independent monetary policy. The Central Bank’s efforts to maintain domestic monetary base unchanged by changing net domestic assets result equal and opposite changes in its net foreign assets.