I have a question relating to central bank's balance sheets, taken from Krugman and Obstfelds' "International Macroeconomics" textbook.
They mention that when the central bank purchases foreign bonds, the domestic money supply increases. This is paid for with domestic currency.
My question is: how does this look like in practice? So say the Fed buys the government of England's bonds. Will they convert it first to pounds? Or would Bank of England sell the bond for dollars? I am struggling to understand how the increase in purchase of foreign bonds increases domestic money supply.
Any help is much appreciated.