Value could be pegged to the dollar by having a set number of premined coins with 0 available for mining with these coins given out for dollars. The creators could then hold onto all of the dollars they receive for the coins, as a way for people to cash out at some point in the future to ensure its value. Maybe a design that would allow only the creators to mine new coins, but everyone in the network to verify them could work. I do not know if such a thing currently exists.
It would be better than Paypal in that after initial issue to users it would be somewhat decentralized. The downside is that you have a central agency basically maintaining the value of the coin, so that if they run away with part of the monetary backing, the whole thing probably goes bust.
Hm. One possibility for pegging that's unavailable with any sort of real good, is to change the money supply by simply scaling the value of all accounts automatically. Of course, probably not something that will actually work, just interesting that a genuinely online currency seems to afford possibilities that are genuinely impossible with physical goods/currencies.
It would be better than Paypal in that after initial issue to users it would be somewhat decentralized. The downside is that you have a central agency basically maintaining the value of the coin, so that if they run away with part of the monetary backing, the whole thing probably goes bust.