China’s central bank barred financial institutions from handling Bitcoin transactions, moving to regulate the virtual currency after an 89-fold jump in its value sparked a surge of investor interest in the country.
Bitcoin isn’t a currency with “real meaning” and doesn’t have the same legal status as a currency, the People’s Bank of China said. The public is free to participate in Internet transactions provided they take on the risk themselves, it said.
An unregulated digital currency may pose a threat to China’s capital controls. Regulatory oversight may restrain demand for Bitcoin in China, which exchange operator BTC China said has become the world’s biggest trader with more than half of global volumes. Surging Bitcoin prices have spurred investor protection concerns and prompted former Federal Reserve Chairman Alan Greenspan to call it a “bubble.”
Bitcoin prices plunged after the PBOC announcement.
“The concern is that it interferes with normal monetary policy operation,” said Hao Hong, head of China research at Bocom International Holdings Co. in Hong Kong. “It represents an unofficial leakage to the current monetary system and trades globally. It is difficult to regulate and could be used for money laundering. I think the central bank is right to make this move.”
The People’s Bank of China, China Banking Regulatory Commission and other regulators have held discussions about drafting rules for trading platforms that facilitate the buying and selling of the virtual money, two people with direct knowledge of the matter said. They were not authorized to speak because the information is not public.