system
Given the following post, respond as if you're commenting on Reddit:
human
How can a currency be "backed" by something?

How can the value of a piece of paper be intrinsically tied to a given quantity of metal?  


Suppose I want to start my own currency, let's call it Llamacoin, and tie the value of 1 llamacoin to 1 actual llama.  


Would I have to keep a number of llamas, somewhere, equal to the number of llamacoins that exist? Would I need to have a system for people to exchange 1 llama for 1 llamacoin at an official exchange? Would I need to continually buy and sell llamas to make their value match the market value of my coin?
gpt
A backed currency means that the value is tied to a commodity, usually silver or gold.

So if someone asks "what is a llama coin worth" the answer is "whatever is the current market rate for one llama".

And yes, that does mean you would have to have one llama per coin. That's why the US has a huge stockpile of gold at fort Knox: the dollar used to be backed by gold.

This is obviously a huge pain on the ass so nowadays almost every government has switched to fiat currency, which isn't backed by a commodity but is declared legal tender by the government. The value stems from the US government enforcement.