eli5 How does a country become eligible to peg their currency to USD?
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The central bank of that country just announces that they will exchange X of the local currency for 1 USD, and they will also exchange 1 USD for X of the local currency. Then the currency is pegged to the US dollar.
Of course, for the peg to last, the central bank needs either enough USD to cover those deals, or a way to borrow enough USD to cover them. The central bank can always print (or electronically create) the local currency, so conversions from USD are always fine, it’s the conversion to USD that can cause problems.
E.g. (simplifying a lot) under the ERM, the British pound was pegged to the Euro. Someone borrowed a billion pounds, and converted it to Euros. Seeing what was about to happen, other people converted pounds to Euros too. The UK central bank promptly ran out of Euros, so the UK had to cancel the peg and leave the ERM. This made the pound worth a lot less. So the person converted some of their Euros to the now cheaper pounds, and had enough pounds to pay off the loan with interest, while still having a lot of Euros left as profit.
The safest way is to ensure that the central bank actually has 1 USD for each X of the local currency that exists.
Another safe way is if two countries agree to peg their currencies together, in that case the two central banks can work together, and between them they can print both currencies.
Another approach is capital controls, making it illegal to transfer the local currency out of the country or to convert too much money into USD. That is not a free market solution, and generally considered a bad idea. Foreign people and companies won’t invest in your country if they can’t get their money back.
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