That's why he only wants to do it in his own "pond" within the real Bitcoin network. Transactions would still be done via the vanilla client, only the money generation would be different. There just needs to be a trusted authority (as in every pool) that watches over money distribution. Additionally he needs to have some incentives for people to mine - especially GPU mining must be more profitable than real bitcoin while returning far less coins. If there are 0 GPU miners in the pool, the few CPU miners won't find blocks themselves and the pond dries out because no money is generated at all.

If I get it correctly, he'd need:

- A pool that somehow detects CPU miners (Hashrate could be cheated by GPU miners launching multiple instances, so there must be another way - probably a quick additional calculation or something that is easy/inexpensive on CPUs but hard on GPUs but should not cause too much loss of hashrate...?!) and hands out getworks of different difficulty but rewards the submitted shares the same. Probably using a PPS system.
- A few Bitcoins to start the system until the first block(s) have been found
- A way to track Bitcoins entering the system and a modified client that gives people the chance to see if a coin or fractions of it is a special "Towncoin" or a regular "Bitcoin" (this might be the hardest part - not the detection, but the distinction so everyone gets the menaning of it!)
- An exchange where you can trade your Dollars for Towncoins and vice versa, with guaranteed exchange rates (that would be quite high, something around a few hundred USD for a full Towncoin probably)

In "Fiat money" this would mean, he'd collect 500 1$ notes, write down the serial numbers and guarantee that he will trade each of these notes for 5 $/piece. Whoever believes him, can now treat these as well like 5$ notes.