The People's Bank of China has issued a warning
that the currency is not legally protected and has no 'real meaning'.
The
Chinese central bank has warned the country's financial institutions not to
trade in bitcoin, saying that
the digital currency doesn't have "real meaning" and lacks legal
protections.
However,
no explicit risk to China's financial system was identified by the bank, and it
reiterated that individual citizens were free to use bitcoin provided they were
aware that they were taking the risk on themselves.
The
bank also identified money
laundering and other illegal uses of the currency as areas of concern.
Bitcoin
has recently achieved a measure of popularity in China, with FiatLeak and other
bitcoin
trading information sites showing large inflows of the currency through Chinese
exchanges.
China
Telecom, the largest mobile phone provider in the country, launched a promotion
allowing a Samsung phone to be bought with bitcoins, and Baidu, the Chinese
Google, is accepting payments for its firewall service in the currency.
But
there's also suspicion that a large measure of the bitcoin's Chinese popularity
is the result of fringe-legal uses. The currency is perfect for getting around
the country's tight capital controls, which prevent rich Chinese citizens from
moving too much money overseas.
While
bitcoin remains unregulated, it is easy for users to buy a large sum in Chinese
yuan and sell it in US dollars, evading those regulations.
The
potential of bitcoin in China is seen as a large part of the reason for the
currency's seven-fold increase in price over November, and the news that the
Chinese central bank is taking a less-than-welcoming stance to it has sent
markets tumbling.
The
value of one bitcoin fell by 28% over two hours on Thursday morning, before
settling into its more normal pattern of rapid large price swings in both
directions.
The
warning follows a similar cautionary tone from the Dutch central bank, which
noted that there is no central issuer which can held liable for bitcoin, and no
deposit guarantee scheme in the event of bitcoin banks failing.
The
former head of the Dutch bank even compared the bitcoin bubble to the
Netherlands' tulip mania in the 17th century – but pointed out that at least
when that bubble burst, investors were left with tulips at the end.
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