this is my response to repentance from this thread on the Discussion forum:
https://bitcointalk.org/index.php?topic=188589.msg1956128#msg1956128stupid idea and not even possible given Bitcoin's design.
It's semi-possible. Other currencies have an official exchange rate but are also used for speculation. Likewise, precious metals have an "official" price but you can still trade them in a speculative manner.
If you believe that Bitcoin won't stabilise without "someone" doing "something" then you need to consider "who" and "what". You also need to consider whether now is the appropriate time to try to stabilise Bitcoin. Are there enough people wanting to use Bitcoin as a currency and enough ways to use it as a currency right now to justify trying to stabilise it or are we years away from it being viable as a currency?
You can't just ignore the fact that many people view Bitcoin primarily as a means of increasing their net worth and it's not especially useful for that purpose if it becomes a stable currency.
If you drive out the speculators, is there enough momentum to sustain Bitcoin as a currency or have we not yet reached that critical mass?
its not possible given Bitcoin's fixed supply design. central to my argument is that the USD is the world's reserve currency and inflation starts with us.
you have to understand how the Chinese accomplish the peg in the first place and how it came about. it originates in the US which has been struggling with stagnant growth for around 3 decades. the Fed via Greenspan, with advice from guys like Larry Summers and Robert Rubin, got the bright idea to suppress interest rates via UST purchases with printed money. this did stimulate growth as entities of all stripes borrowed cheaply, but at the expense of debt and huge speculation. this speculative hot money was hoovered up by banks, hedge funds, corporations and speculators and was hauled off to emerging markets looking for growth plays. realize this was well before China ever got onto the map of production.
given that the huge Chinese population was ripe for exploitation of cheap labor, this was the logical place to head. as this USD tsunami started buying up Yuan to facilitate the mobilization of this labor force and build factories, naturally the Yuan had to go up in value. but the Chinese elite and local manufacturers were not about to let the US corporations get away with this so they got their Central Bank and gov't to set a peg to the USD. thus for every USD entering China, an equivalent Yuan was printed out of thin air to buy up those USD's and keep the yuan at a pegged, controlled albeit declining level. in essence, as the Fed drove down the value of a USD, the yuan was driven down in lock step. b/c of this devaluation, Chinese goods got very cheap and the local Chinese manufacturers (and US corporations and speculators) did very well as every other country came to buy up affordable goods. note how this came at the expense of the average Chinese laborer whose purchasing power was eroded every step of the way.
the Chinese Central Bank then turned around and plowed all those USD's back into UST's creating even lower interest rates and perpetuating the virtuous circle of what primarily was USD inflation. this is what they mean when they say the US exports its inflation. i have news for you; that inflation comes back to us in spades. the Chinese CB also from time to time would perform "sterilization" operations where they would issue their own form of treasury bonds to mop up the excess yuan locally from all these exercises. the problem now is everyone has too much debt on their hands and the interest payments are overwhelming true productivity.
thus you can see, imo, that the only way to keep Bitcoin's price at a level of say 100 is to print more Bitcoin,
not manipulate the price via pulling USD's out of the Bitcoin market. this is a backend problem (Bitcoin), not a frontend problem (USD), so to speak (that's if you view this as a problem at all). the difficulty of trying to cap the price at the frontend by using USD inflows and outflows to Bitcoin is that there are just too many USD's floating around and being issued monthly at a clip of $85B/mo. any manipulator trying to crash the Bitcoin price by selling will only be met with even more buyers with plenty of USD ammunition in the clip.
if you then try to attack this non-problem from the backend via issuing more Bitcoin, Bitcoin is no longer Bitcoin, and no one will follow your fork.
thus, i believe Max's idea is a silly one that is impossible to accomplish.
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