China bans banks from trading in Bitcoin

The Bitcoin has been growing in popularity in China as a new kind of investment

The price of bitcoins may be soaring, but China isn't too thrilled with the virtual currency. On Thursday, the nation moved to regulate use of bitcoins, stating that its financial institutions could not deal in the virtual currency.

"The bitcoin is a special kind of virtual product, it does not have the same legal status as a currency," authorities said in an online posting. "It should not and cannot be used as a currency circulating in the market." The posting came from the nation's regulators, including the People's Bank of China and the ministry that oversees the tech sector.

To regulate bitcoin usage, China will implement anti-money laundering measures with sites that exchange the virtual currency. This includes obliging users to register with their real identities.

China's main objection to Bitcoin is that the cryptocurrency is not controlled and issued by a central monetary authority; the government posting also expressed concern that the number of bitcoins is limited, though it did not say why that's a problem. Another issue for the Chinese is that transactions with the currency can be done anonymously.

China said the public would be free to use bitcoins as long as individuals take on the risk. But authorities are particularly concerned with the virtual currency's volatile price and how some bitcoin sites are not legally registered.

"Some sites have poor security and safeguards, and can easily experience hacking attacks or the site's operators will abscond with the money," authorities said in a separate posting.

The bitcoin has been trading at more than US$1,200 over the past few days, according to the Tokyo-based Mt. Gox exchange. But following China's announcement, the price fell under $1,000.

Bitcoin is becoming increasingly popular in China and a few online vendors, including a site from search engine Baidu, have been accepting the currency in recent months, said Bobby Lee, CEO of BTC China, a Bitcoin exchange in the country.

"So far, the Chinese people are choosing bitcoins as a digital asset for savings," he said in October. "With the potential for significant price appreciation in bitcoins, people here are buying it as an alternate form of investment."

China announced the new measures after local police recently detained three people for allegedly scamming Bitcoin investors through an online exchange, reported state press, the Xinhua News Agency. The exchange had attracted 4,493 users, but the site's operators abruptly shut it down in October, keeping all the assets.

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