China bars banks from bitcoin transactions

Thu Dec 5, 2013 6:23am EST
 
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By John Ruwitch and Pete Sweeney

SHANGHAI (Reuters) - China's government banned financial institutions from trading in bitcoin on Thursday, in what analysts said was a restrained first step towards regulating the digital currency that has exploded in popularity in China and soared in value in recent months.

A statement by the central bank and four other agencies said that, while the computer-generated currency does not yet pose a threat to China's financial system, it carries risks. It did not, however, curtail the use of bitcoin by individuals.

"I think it's measured and it's positive," said Zennon Kapron, of the financial consultancy Kapronasia. "It does add legitimacy to the idea that it could be a nationwide accepted currency."

The value of bitcoins on Chinese exchanges fell after the announcement, however, with one expert predicting the price could halve in the short-term. Digital currencies are generally highly volatile.

Bitcoins have seen their value relative to the dollar skyrocket some 800 percent in the past two months as speculators have piled into the currency, according to bitcoinity.org.

While there is no official data available, bitcoin market operators say Chinese nationals are major participants in the market and hold an outsized share of the total number of bitcoins in circulation. Shanghai-based BTC China has recently become the world's largest bitcoin exchange by volume.

A statement on the website of the People's Bank of China (PBOC) said that the government would act to prevent money laundering risks from bitcoin, which is not backed by a government or central bank.

The PBOC may have cause to be concerned about bitcoins, which are anonymous, untraceable, and can be carried on memory sticks or transmitted electronically, because they represent a potential hole in the country's capital controls.   Continued...

 
Some of Bitcoin enthusiast Mike Caldwell's coins in this photo illustration at his office in Sandy, Utah, September 17, 2013. REUTERS/Jim Urquhart