user136: Many people will not touch bitcoin due to it's historically extreme volatility. Many new currencies have pegged their value against an established currency until such time as it is sufficiently established to be decoupled. 
For example the Irish punt was linked to the Sterling pound until they joined the European Monetary Union in 1979.
Would it be possible perhaps by way of a financial service organisation that guarantees a value against a stable currency such as the swiss franc for example, this using bitcoin as a form of promisory note? 
Is the agreement of a fixed rate against an established currency like type of future or option in the stock market?
I think this could help speed adoption. 

user329: The main "obstacle" for this idea is that few people would like it. The central advantage of Bitcoin is that it has no central point of failure - or at least not single organization that is liable for it.  With a peg, there is necessarily an organization that is liable to maintain the peg - they have to keep their promise. 
So if Bitcoin were pegged in such a way, it would be no better than prior digital currencies like Beenz or egold. 

user85: The easiest way to immediately see why this would be extremely difficult, if not impossible, is to imagine this: Suppose you decided that the price of an ounce of gold today in dollars (or relative to a bundle of goods, or whatever) was the perfect price for gold. What could you do to keep it stable?

user307: The larger issues isn't can it be done it is why would anyone do it.
Central banks buy and sell opposing currencies to keep the value pegged.  Generally speaking they lose a ton of money doing this however it provides a public good and being a central bank they can simply create or destroy sufficient money to accomplish the goal.  Any losses the central bank accrues or gains are simply felt by overall economy via inflationary and deflationary pressures.
There is no central bank thus any entity which tried to do this would be facing significant and continual real losses for no benefit.  Sure the entire Bitcoin economy benefits but that isn't something that can be monetized by the entity taking the risk/losses.
The only situations that even seems possible is some benefactor who willingly suffers massive and continual market losses to provide a narrow trading range for Bitcoin and that isn't very likely.

user108: Unlike any other fiat currency, bitcoin money supply could not be manipulated, therefore it's not possible to fix its value in any way but good old buy and sell orders which would require a very heavy investments.

user625: I think that trying to tie the value to some arbitrary standard is artificial - for one thing, the value may depart substantially from that other standard and needs to be allowed to vary in order to stablize at an authentic (ie reflecting supply/demand etc) rate.
However, reducing extreme volatility would indeed make BTC more appealing as a medium of exchange or investment.  The extreme volatility seen in June was due to illiquidity of the bitcoin market in the face of a sudden increase in demand.   It's just like a 'penny stock', where few shares are traded and there is no market-maker or institutional investor.
Picture a cup of ice cubes, vs the same volume of water.  If you add or remove the same amount of water, the level in the ice-cube cup will jump in increments, vs the level of liquid water varying smoothly.
Liquidity of the BTC market would improve if many traders were always present to make small transactions on mtgox, and if several institutions or big investors would step in to 'make a market' in bitcoins.  Making a market would require holding a BTC reserve large enough to satisfy most requests to buy OR sell BTC in a current day.  Examining bitcoincharts.com, we see this would mean holding about 250K BTC each.   The market maker(s) simply post active Bids and Asks slightly wider than the spread, so they are always making some profit just buying and selling.  
It would also help if the bitcoin exchanges consolidated to one, or what will happen is someone will build arbitrage bots which exploit 'flipped markets' - eg situations where a bid on one exchange is higher than ask on another exchange.
Thirdly, it would help if a venture fund existed to invest in businesses which accept BTC payments or build BTC technology... people would then invest in that fund and act to protect their interests in BTC succeeding.  I am working towards creating such a fund but can't talk about it yet.

user323: You could fix the minimal value of Bitcoin if you had some money and you wouldstate: "I have X$, I will buy each and every Bitcoin you offer me at the rate of X/2100000$". The only problem is that people need to trust you and you have to have enough money. So, if you get en established company (for example, Google) to secure the funds you can fix the minimum price of Bitcoins at any arbitrary rate.
Fixing the maximum price, however, is impossible, as you can't generate Bitcoins at a whim to sell to anyone offering you money. As with anything with limited supply, the sky is the limit.

user350: The only way to fix an exchange rate is to constantly trade at this rate. This requires unlimited funds.
So assume you want to peg BTC against CHF as in your example. For simplicity, we aim at 1 BTC == 1 CHF. Here's a simple recipe.

Have unlimited Bitcoin and unlimited CHF.
Find a Bitcoin exchange. 
Offer to buy an unlimited amount of Bitcoin for 1 CHF/BTC.
Offer to sell an unlimited amount of Bitcoin for 1 CHF/BTC.
Observe how everyone will accept 1 BTC/CHF as the official rate.
If you run out of Bitcoin or CHFs, give up.


136: <p>Many people will not touch bitcoin due to it's historically extreme volatility. Many new currencies have pegged their value against an established currency until such time as it is sufficiently established to be decoupled. </p>

<p>For example the Irish punt was linked to the Sterling pound until they joined the European Monetary Union in 1979.</p>

<p>Would it be possible perhaps by way of a financial service organisation that guarantees a value against a stable currency such as the swiss franc for example, this using bitcoin as a form of promisory note? </p>

<p>Is the agreement of a fixed rate against an established currency like type of future or option in the stock market?</p>

<p>I think this could help speed adoption. </p>
 329: <p>The main "obstacle" for this idea is that few people would like it. The central advantage of Bitcoin is that it has no central point of failure - or at least not single organization that is liable for it.  With a peg, there is necessarily an organization that is liable to maintain the peg - they have to keep their promise. </p>

<p>So if Bitcoin were pegged in such a way, it would be no better than prior digital currencies like Beenz or egold. </p>
 85: <p>The easiest way to immediately see why this would be extremely difficult, if not impossible, is to imagine this: Suppose you decided that the price of an ounce of gold today in dollars (or relative to a bundle of goods, or whatever) was the perfect price for gold. What could you do to keep it stable?</p>
 307: <p>The larger issues isn't can it be done it is why would anyone do it.</p>

<p>Central banks buy and sell opposing currencies to keep the value pegged.  Generally speaking they lose a ton of money doing this however it provides a public good and being a central bank they can simply create or destroy sufficient money to accomplish the goal.  Any losses the central bank accrues or gains are simply felt by overall economy via inflationary and deflationary pressures.</p>

<p>There is no central bank thus any entity which tried to do this would be facing significant and continual real losses for no benefit.  Sure the entire Bitcoin economy benefits but that isn't something that can be monetized by the entity taking the risk/losses.</p>

<p>The only situations that even seems possible is some benefactor who willingly suffers massive and continual market losses to provide a narrow trading range for Bitcoin and that isn't very likely.</p>
 108: <p>Unlike any other fiat currency, bitcoin money supply could not be manipulated, therefore it's not possible to fix its value in any way but good old buy and sell orders which would require a very heavy investments.</p>
 625: <p>I think that trying to tie the value to some arbitrary standard is artificial - for one thing, the value may depart substantially from that other standard and needs to be allowed to vary in order to stablize at an authentic (ie reflecting supply/demand etc) rate.</p>

<p>However, reducing extreme volatility would indeed make BTC more appealing as a medium of exchange or investment.  The extreme volatility seen in June was due to illiquidity of the bitcoin market in the face of a sudden increase in demand.   It's just like a 'penny stock', where few shares are traded and there is no market-maker or institutional investor.</p>

<p>Picture a cup of ice cubes, vs the same volume of water.  If you add or remove the same amount of water, the level in the ice-cube cup will jump in increments, vs the level of liquid water varying smoothly.</p>

<p>Liquidity of the BTC market would improve if many traders were always present to make small transactions on mtgox, and if several institutions or big investors would step in to 'make a market' in bitcoins.  Making a market would require holding a BTC reserve large enough to satisfy most requests to buy OR sell BTC in a current day.  Examining bitcoincharts.com, we see this would mean holding about 250K BTC each.   The market maker(s) simply post active Bids and Asks slightly wider than the spread, so they are always making some profit just buying and selling.  </p>

<p>It would also help if the bitcoin exchanges consolidated to one, or what will happen is someone will build arbitrage bots which exploit 'flipped markets' - eg situations where a bid on one exchange is higher than ask on another exchange.</p>

<p>Thirdly, it would help if a venture fund existed to invest in businesses which accept BTC payments or build BTC technology... people would then invest in that fund and act to protect their interests in BTC succeeding.  I am working towards creating such a fund but can't talk about it yet.</p>
 323: <p>You could fix the minimal value of Bitcoin if you had some money and you wouldstate: "I have X$, I will buy each and every Bitcoin you offer me at the rate of X/2100000$". The only problem is that people need to trust you and you have to have enough money. So, if you get en established company (for example, Google) to secure the funds you can fix the minimum price of Bitcoins at any arbitrary rate.</p>

<p>Fixing the maximum price, however, is impossible, as you can't generate Bitcoins at a whim to sell to anyone offering you money. As with anything with limited supply, the sky is the limit.</p>
 350: <p>The only way to fix an exchange rate is to constantly trade at this rate. This requires unlimited funds.</p>

<p>So assume you want to peg BTC against CHF as in your example. For simplicity, we aim at 1 BTC == 1 CHF. Here's a simple recipe.</p>

<ol>
<li><p>Have unlimited Bitcoin and unlimited CHF.</p></li>
<li><p>Find a Bitcoin exchange. </p></li>
<li><p>Offer to buy an unlimited amount of Bitcoin for 1 CHF/BTC.</p></li>
<li><p>Offer to sell an unlimited amount of Bitcoin for 1 CHF/BTC.</p></li>
<li><p>Observe how everyone will accept 1 BTC/CHF as the official rate.</p></li>
<li><p>If you run out of Bitcoin or CHFs, give up.</p></li>
</ol>
