You can peg a currency to a commodity by guaranteeing that if someone brings in 1 unit of currency, you'll give them 1 unit of commodity. Gold, oil, another cur

You can peg a currency to a commodity by guaranteeing that if someone brings in 1 unit of currency, you'll give them 1 unit of commodity. Gold, oil, another currency, bananas, a slowly-inflating basket of goods and services, whatever. Trick is, people have to believe that you can and will make the exchange. If you have a whole fortress full of gold, for example, people will probably believe your pieces of paper that say "redeemable for 100 gold coins", and the value of the paper is about that of the coins. If I issue paper that says "redeemable for 1 acre of prime Manhattan real estate" you wouldn't (and shouldn't) believe it, because I don't have any Manhattan real estate. So: how much should one believe that 1 "petro" is actually redeemable for 1 barrel of oil? Clearly they have some oil, but there's no clear mechanism yet for making that exchange. And long term, there's obviously trust issues.