There Are a number of nations where government income is mainly denominated in forex, mainly dollars. They sell natural resources to foreigners to raise revenue. If a nation's government is dependent on oil dollars, then the central bank will value the local currency according to how much oil dollars is streaming in. If a lot, the local currency will rise in value, if less, it will drop in value but if the dollar component of government revenue is not much, then the effect on the value of the local currency will be tangential like with Normay's Krone NIGERIAN EXAMPLE When oil dollar income drops in Nigeria, the CBN prints local currency to offset government's bill denomimated in Naira, this brings down naira value in the free market but government can sell their own dollars at a below market price or not at all since it is theirs hence the dual exchange rate in nations like Nigeria when such pressure mounts. Later When the pressure subsides and oil dollar income surpasses projections, they stop ...

... printing the naira and even hoard local currency. I have once said foreign oil buyers should buy in naira after changing their dollars in the free market like foreign produce buyers do but that will not solve the revenue short fall that leads to government printing money in the first place which causes inflation. The only way out is to relegate oil income to the background by taking income tax from the economy. . If Nigeria consumes USD 15O million a day and 30 percent is government controlled oil dollars then govt can cause inflation by printing money. Then like President Buhari's Govt, sell their own dollars cheaply causing a dual exchange rate. This Of Course is a dangerous game like playing with a man's Adam"s Apple. It needs to stop on Earth and it can only be stopped by ending natural resource dependency on the globe, by wholly formalizing all economies so that income tax becomes the main revenue source

A good way to reduce the economy's vulnerability to oil price fluctuations will be to rapidly diversify the economy and boost local production of substitutes.

Naijastatesman9:
A good way to reduce the economy's vulnerability to oil price fluctuations will be to rapidly diversify the economy and boost local production of substitutes.

Nigeria's GDP by PPP is over 1 trillion dollars and oil in it is less than USD 20 billion The USA has around USD 180 billion inside USD 16 trillion of GDP