I've heard a few prominent bitcoiners (Andreeseen, ppl from BitPay) say that currencies such as US Dollars can be "issued" over the bitcoin network. I'm not exactly sure how this is possible, and I don't think this has to do with the exchange rate necessarily. Can someone explain?
If you are quoting correctly, he is 100% incorrect, and he should've consulted an old white man first.
"Issuance" as defined by economics and more importantly by law is the creation of a liability by the liable. The Bitcoin blockchain is not liable for Federal Reserve debts, in this case US Dollar banknotes; further, the Bitcoin blockchain has no power to create a liability owed by the Federal Reserve; therefore, the Bitcoin blockchain has no power to issue US Dollars.
Now, if it's a slight misquote, that the Federal Reserve could issue USD via a cryptocurrency implementation, that is 100% correct and would be a superior depository management system. Of course, the Bitcoin code would have to be altered and centralized to provide this functionality, but the point remains.
It would be superior for central banks to manage deposits with cryptocurrency implementations because the accounting can be made 100% accurate, and the security is bulletproof until the digital signature algorithm is broken. Costs would plummet, but gov't agencies rarely are concerned with cost...nor revenue for that matter.
This could be accomplished with "colored coins", the idea being that you are transferred a coin that is tagged in some way, and the tag is exchangeable for something else. This can work with many types of contracts, including property ownership, currency futures, etc.