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China bans banks from bitcoin transactions as Wall Street wades in

05 December 2013  |  8146 views  |  7 Chinese Flag

China's central bank has finally had its say on bitcoin, ruling that it is not a proper currency and banning financial institutions from handling it.

With Chinese regulators appearing to take a relaxed approach to bitcoin, local investor interest in the virtual currency has surged in recent months, helping push its value past $1000.

However, the People's Bank of China- in conjunction with other regulators - has now issued a statement saying that bitcoin is a virtual good, not a currency and should not be used as such. Banks and financial institutions "may not conduct business associated with bitcoins".

The central bank says that individuals are free to trade the currency but highlights three concerns about it: that it is a risky investment because of volatility; that it is an attractive tool for money laundering; and that it is can be used by criminal gangs.

To help improve transparency, online bitcoin exchanges will have to file records with regulators and follow money laundering rules, reporting suspicious transactions.

Within an hour of the statement, bitcoin's value fell by 10% on BTCChina - which recently became the world's biggest exchange.

Meanwhile, Chinese police have detained three people accused of shutting down the bitcoin exchange they operated and making off with investors' assets, according to local news agency Xinhua. The GBL exchange was established in Hong Kong in May but shut down in October, leaving users only a fake postal address as a contact.

While bitcoin's true value has been hotly contested since it broke the $1000 mark last week, Wall Street analysts have predicted that it the currency could be worth 10-100x its current price.

Gil Luria and Aaron Turner from Wedbush say: "Among other facets, we believe Bitcoin and its associated technology represent a potentially game-changing disruption to our covered payments companies."

The pair also see value in Bitcoin for PayPal, arguing that it "represents another potential low cost funding method. PayPal is already incorporating private label cards, gift cards and miles into the digital wallet and we believe that with more regulatory clarity PayPal would likely embrace Bitcoin."

Similar musings have come from Bank of America Merrill Lynch. "We believe Bitcoin can become a major means of payment for e-commerce and may emerge as a serious competitor to traditional money transfer providers," wrote currency strategist David Woo in a 14-page note to clients this morning. "As a medium of exchange, Bitcoin has clear potential for growth, in our view."

Comments: (7)

Alexander Peschkoff
Alexander Peschkoff - TEDIPAY - London | 05 December, 2013, 11:01

Ditto.

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Brett King
Brett King - Moven - New York | 06 December, 2013, 05:10

The title of this story is factually wrong. While certainly restricting the use of Bitcoin as a typical currency for chartered banks, the Chinese Government has most definitely not "Banned" bitcoin. That statement is inaccurate.

In the statement from Xinhua and Yi Gang, the deputy governor of the People’s Bank of China and the director of the State Administration of Foreign Exchange, the government stipulated that Bitcoin was a digital or virtual commodity not a currency. In that sense, Banks are restricted in the way they can offer Bitcoin. For example, they can't hold Bitcoin deposits or trade it as in ForEx scenarios. 

However, contrary to the sensational headline, rather than banning Bitcoin the Chinese government has very specifically said that Chinese consumers and businesses are absolutely free to trade in Bitcoin with just one proviso:

“Ordinary members of the public have the freedom to participate in Bitcoin transactions as a kind of commodity trading activity on the Internet, provided they assume the risks themselves,” the statement said.

For more details see - http://www.nytimes.com/2013/12/06/business/international/china-bars-banks-from-using-bitcoin.html?hpw&rref=business&_r=0

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Alexander Peschkoff
Alexander Peschkoff - TEDIPAY - London | 06 December, 2013, 05:42 Typical currency?.. Commodity?.. Mess.
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Brett King
Brett King - Moven - New York | 06 December, 2013, 05:47

@Alex - it would be nice and convenient if there was no changes in the world and it continued to work within our very defined set of parameters of what we think of as a currency, banking system, etc. But that's innovation for you - it tends to be disruptive, and that gets messy. Not for innovators, mind you, just for incumbents who don't like being disrupted.

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Alexander Peschkoff
Alexander Peschkoff - TEDIPAY - London | 06 December, 2013, 06:45 "Currency" that changes its exchange rate faster than Zimbabwean dollar is INNOVATION?!.. Hm... I thought we should have learnt something from tulip bulbs... There are much more real and pressing things that needs to be disrupted in the world to make it a tangibly better place. IMHO.
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Brett King
Brett King - Moven - New York | 06 December, 2013, 07:18

@Alex - I guess you better go and tell all those people buying them then that they're wasting their time. 

Let's see how that goes for you... 

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Alexander Peschkoff
Alexander Peschkoff - TEDIPAY - London | 06 December, 2013, 09:30 Do you mean people who'd like to buy a couple of those Bitcoins to pay for whatever they cannot use normal money/currency for, and have to cough up over a thousand bucks apiece? Or those who bought them for $100 and sold for $1000 and don't know what to do next?..
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