China Central Bank warns banks against use of bitcoin

China's central bank warned on Thursday that financial institutions should not trade the digital currency bitcoin, saying that while it does not yet pose a threat to China's financial system, it carries risks.

The central bank also said in a statement on its website that it would act to prevent money laundering risks from bitcoin, a prominent digital currency that is not backed by a government or central bank.

Bitcoins, and other computer-generated virtual currencies like it, have seen their relative values rise to historic highs in recent months as speculators have piled into the currency.

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.

As such they have been heavily covered in domestic media, including a special broadcast on state-run television earlier in 2013.

The People's Bank of China (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 closed capital account.

However, analysts point out that, given the tiny value of the total bitcoins in circulation relative to other currencies, it is unlikely to have much impact on the wider economy.

More cause of worry is the way these currencies have engendered a new wave of creative criminality focused on hacking online platforms and stealing bitcoins stored there, and their potential for use in money laundering, bribery and purchases of illicit products such as drugs and weapons.

The PBOC will require trading platforms that deal in virtual currencies such as bitcoin to register with telecommunications authorities, it said.

The central bank did allow that ordinary individuals were free to use bitcoin, so long as they take on the risk themselves.

"I don't think it's good or bad," said bitcoin vendor Du Zhiliang, who sells bitcoin "mining" computers online. Du owns over 2,000 bitcoins himself and has been a heavy speculator in the past.

"The policy won't affect the BTC exchange rate. It means the government acknowledged its existence, and didn't say it's illegal. Now the whole country has their eyes on bitcoin."

The value of bitcoins on Chinese platform FXBTC.com fell in heavy volume after the news to about 6,500 yuan per coin at 0830 GMT from around 6,900 yuan.