China demands all banks cease trading in Bitcoin

China demands all banks cease trading in Bitcoin

Summary: The cryptocurrency has suffered an extreme blow in China as the government bans banks and payment service providers from dealing in Bitcoin.

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China's central bank has enforced a crackdown on Bitcoin trading, demanding that all banks and payment service providers cease their dealings in the digital currency.

According to Chinese business website Caixin, the People's Bank of China (PBOC)'s latest ruling, taking effect April 15, means that banks and payment companies must close "all the accounts opened by the operators of websites that trade in the virtual currency."

In other words, all cryptocurrency trading websites—the equivalent of Mt. Gox or Polinex—operating in China must shut their doors. In addition, cash will be the only way for investors to purchase Bitcoins, according to one analyst who spoke to the publication.

"The only one way out for Bitcoin websites is moving their servers abroad and using the service of foreign banks and payment companies," the analyst said.

While the ruling has not been officially announced by the central bank, documents seen by the publication and reportedly sent to PBoC regional offices state that money can be withdrawn from the accounts before April 15, but deposits are no longer permitted. If banks fail to comply, "punishments" will be issued, although there is no clarity on what kinds of punishments these will be.

The document states that Bitcoin is not to be considered a currency, but rather a commodity—and, as a result, 15 trading websites were named whose accounts are due for closure. It added that investors trade at their own risk, but need to understand it is not legal tender.

The argument over whether cryptocurrency such as Bitcoin, Dogecoin, and Litecoin can be considered a true currency—and submissive to the same regulation and laws—or a commodity, is wide-ranging. However, the fluctuating nature of these investments as well as the continual risk of cyberattack and theft remain a problem.

Recently, Tokyo-based Bitcoin exchange Mt. Gox filed for bankruptcy after accounting issues, system errors, and cyberattacks resulted in the theft of customer Bitcoin worth millions. In addition, Bitcoin exchanges Vircurex, Flexcoin, and Poloniex have all fallen victim to hacking, and have been forced to freeze customer accounts, take slices out of profit, and even close down due to security problems.

Topics: China, Government Asia, Tech Industry

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28 comments
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  • Not really any debate over currency vs commodity.

    "The argument over whether cryptocurrency such as Bitcoin, Dogecoin, and Litecoin can be considered a true currency—and submissive to the same regulation and laws—or a commodity, is wide-ranging."

    The terms are not mutually exclusive. Precious metals have been used in the past as currencies. There aren't any laws that I know of saying it must be one or the other, but not both.

    That being said:

    It's certainly a currency, since:
    -You can trade it for goods and services (except in China now).
    -It's a store of "value," and can be divided up easily.
    -It is not, by itself, a good or a service. It's a medium of exchange.

    According to the Wikipedia:
    "In economics, a commodity is a marketable item produced to satisfy wants or needs.[1] Economic commodities comprise goods and services.[2]"

    -Bitcoin does not, by itself, satisfy a want or need. It's a medium of exchange. This will be especially true when the last bitcoins have been mined, as there is only a finite supply. The "gold rush" has an end date, after which it essentially dies if there is no desire to use it as a medium of exchange.

    -It's neither a good nor a service.

    Thus, I don't think there's really any debate: It must be a currency, and it can't be a commodity. The debate exists only in the minds of bloggers who are too lazy to look up the definitions and put some thought into what it is.
    CobraA1
    • Nonsense.

      Apparently you've figured it all out and the monetary policy specialists for governments around the world are all wrong. :S

      First of all, by your definition "currency" is anything you can use as payment and it includes everything from Monopoly money to gold pieces in World of Warcraft. No one cares about fantasy currencies.

      The issue people care about for the purposes of Bitcoins is whether it is legal tender, i.e. are people legally required to accept it as payment of a debt. That is solely within the discretion of the government. The problem with Bitcoins as legal tender is they are volatile, they are backed by nothing at all and they are completely unsecure because no one has any responsibility to make sure that their monetary system holds together and is not subject to rampant fraud, as is evidenced by Bitcoin's recurring problems. There are people who argue about national currencies are not backed by anything either; that is untrue. While you can't trade them for bullion , a national currency is backed by the solidity of the entity that issued it. People accept U.S. dollars worldwide because the U.S. Government endures. The same is true with Euros, Yen, Yuan, Pounds. The same is also true of banknotes, they are backed by the solidity of the bank that issued them. Bitcoins have nothing at all behind them. There is no entity who can be called to account for what happens with them. They are worth only what people will pay for them which can be anywhere from thousands of dollars to zero and there is no way of knowing what it will be from day to day. As has been pointed out, that is too volatile and too unsecure to be classified as a legal currency.

      The issue with Bitcoins is they don't meet the functional requirements of a legal currency but they aren't exactly a commodity either because they have no intrinsic worth. They are some sort of (very poor) representation of value which is why I think German classification of Bitcoins as a unit of account is best.
      Tzarevitch
      • I guess that means Charlie chose the wrong word.

        "Apparently you've figured it all out and the monetary policy specialists for governments around the world are all wrong."

        Eh? Don't be silly. I don't disagree with them - I'm just disagreeing with Charlie, who seems to me mixing up her concepts and words.

        "First of all, by your definition 'currency' is anything you can use as payment and it includes everything from Monopoly money to gold pieces in World of Warcraft."

        There are multiple definitions of the word; a broader interpretation of the word could indeed include Monopoly money and WoW gold pieces. Monopoly money is traded for property and houses/hotels within the context of the game, and a similar thing is true for WoW gold.

        Charlie didn't really choose her words all that well; as you have indicated, the discussion is really about whether or not it's legal tender.

        "The issue people care about for the purposes of Bitcoins is whether it is legal tender, i.e. are people legally required to accept it as payment of a debt."

        I guess that means Charlie chose the wrong word for her article. She should have spoken about legal tender, rather than currency.

        . . . and that's really what the monetary policy specialists are talking about: Whether or not it's legal tender.

        I don't think the word "commodity" would be used in their discussions, as it would not be an accurate description of "everything that is not a currency" or "everything that is not legal tender."
        CobraA1
      • nice analysis

        well don't Mr Tzarevitch
        Aussie_Troll
    • Perhaps...

      But, I would put Bitcoin in the same category as stocks. Like stocks, the value of a Bitcoin changes based on various factors. Like stocks, a Bitcoin can be used in lieu of 'cash'. Take the recent purchase of Orulus Rift by Facebook.

      "In a Tuesday afternoon shocker, Facebook announced it is buying hot virtual reality gaming company Oculus VR for $2 billion. That includes $400 million in cash and 23.1 million shares of Facebook stock. "

      That 23.1 million stock shares has a perceived cash value and is thus accepted as psuedo-currency.
      Illutian
  • I wonder if

    I wonder if the banking cabal sees Bitcoin as an oddity or a threat. If they consider it a threat, be aware they might go to any length, so be cautious.

    Hm. It's called currency for a reason. Currency means flow .. and the banking cabal banksters have set up a system where the river flows along their banks to them.
    Time Agora
    • Where are you getting this?

      It's not an oddity or a threat to the banks except in the sense that investing in it is a threat to their financial solvency. The problem is that it's incredible unstable therefore reputable banking institutions can't afford to invest in it lest they lose their shirts and take everyone's investments down with them. It isn't far different from the banks' investing in shaky mortgage packages a few years ago that nearly brought down the financial system.

      You are saying "it's called currency for a reason" but who are you saying is calling it currency? Financial regulators worldwide (whose opinion on this subject actually matters) have said over and over again (including China again above) that it is NOT legal currency. Anyone can toss out the word "currency," that does not mean legal currency. Like I said above, Monopoly money is technically currency - within the confines of the game. We don't care about niche currencies. The question people are debating is whether it is a currency that must be accepted as a payment for a debt.
      Tzarevitch
      • Reply to "Where are you getting this?"

        I'm not against nor for Bitcoin per se. I don't trust it, but it is curious; and it and similar might be really good ideas. My brother and I set up a computer to "mine" Bitcoins for a while. The glitches were many to the point it was getting to be a waste of time. I think my brother has half a Bitcoin in his wallet, which is a small but nice sum should it be translated into goods, services, or money.

        But there just seems to be too much news about Bitcoin. Bad news. Computers being broken into. Wallets cleaned out. And so on. I wonder if there might be an element of sabotage.

        I get a small kick at your using the term "reputable banking institutions". LOL, they're reputable all right, it's just that the reputation at times ain't pretty.

        Anyway .. I think you misread/miscomprehended my comment on "currency". Both real money and fiat money can be considered "currency". Bitcoin, whether recognized, legalized, or no, can also be considered a form of currency.

        The bankers may not care about Bitcoin much, or it might deeply disturb them. The reason is that the current banking system is designed so all the currency flows along the bankster's banks, towards them. My wonder is that should they think Bitcoin either interrupts the flow, or redirects the flow away, they would consider it a threat. Should this be so and depending how things "go down", investing too heavily in Bitcoin could prove a risk to one's financial health.

        'Have a nice one.
        Time Agora
    • The root of Currency is 'curraunt', not 'current'.

      Isn't the definition of currency A) being backed by the issuer, and B) being accepted at face value without question?

      "Banks' buy and sell things other than currency every day. Gold, silver, frozen orange juice concentrate, etc. How would Bitcoin be a threat to banks any more than orange juice is?

      What makes me wonder about Bitcoin is that it seems to attract only the paranoid, disaffected misfits with a limited (or just wrong) understanding of the world around them. Bitcoins biggest supporters seem to be those that believe Obama is destroying the economy, or Obama is coming to take our guns, or Obama is going to put us all in concentration camps, or those awaiting the Rapture. It seems like Pokemon; it's hard for me to take seriously in a grown-up sort of way.

      That, and the fact that it REALLY looks like a pyramid scheme to me.
      pishaw
      • pishaw: "those that believe Obama is destroying the economy"

        It was on President Obama's watch that $13 trillion U.S. were transferred from the U.S. Treasury to the monster Wall Street Banks, adding *very* substantially to the U.S. national debt. The financialization of the U.S. started under the Reagan administration and has continued ever since under both Republican and Democratic administrations and Congresses, largely replacing manufacturing. President Obama could have chosen to use the Swedish model with the monster Wall Street Banks, but instead used the Japanese model (which was known not to work in Japan). Thus, President Obama, like others before him, did his bit.

        P.S. It was during the Clinton administration that the Glass-Steagall Act was repealed, removing the wall between commercial and investment banking, and financial derivatives were placed beyond regulation. President Clinton had some fine help from the Republican members of Congress.
        Rabid Howler Monkey
      • Yes.

        It isn't a typical pyramid but it does have similarities. The Bitcoin system basically pulls an item out of the air (mining coins on the computer), declares that item to be valuable, adds to itself, and then relies on speculators to take a chance on whether the resulting mass really is worth anything.
        Tzarevitch
        • agreed

          it is very much like a pyramid scheme/Ponzi / Amway, or a combination of the worst aspects of them all.

          and what is worse that creating a 'thing' out of thin air, is trading that 'thing' (nothing) across multiple exchanges and creating money out of thin air, is just insane.

          this is what happened, Mt. Gox pumped BTC price up to $1200 USD, the other major exchanges had a trade price of about $1000, so you could buy a Bitcoin from one exchange for $1000 and sell it to Mt.Gox for $1200 and you make yourself $200 USD per trade.

          Where do you think that $200 comes from ? How is it created ? and who paid that $200 in USD so you could have it?
          Mt.Gox does not have a license to print cash, so they need to cough up $200 when someone wants to cash out a BTC, not you can buy a BTC from Gox for $1200, but you can also buy them from other exchanges for $1000 AT THE SAME TIME.

          So who in their right mind would buy BTC from Gox for $1200, but they would sell to Gox for $1200 !

          End result Gox blows up, oh but Gox is holding all these Bitcoins in other people wallets, "lets just use those to cover our shortfall !".
          All good an well, until the entire thing fall in a heap of poo.
          Aussie_Troll
      • Cryptocurrencies = Redneck Republicans?

        I have to disagree with your take on the culture around bitcoins. I trade professionally and know several people that dabble with these things as a hobby and I can assure you, your speculation is really far off. The kind of people that support Bitcoin are predominantly intelligent and successful people with a geeky soul and tech background.
        JCAK85
      • Reply to "The root of Currency is 'curraunt', not 'current'."

        Sure about that? how about the latin:

        currency

        1657, "condition of flowing," from L. currentum, pp. of currere "to run" (see current); the sense of a flow or course extended 1699 (by John Locke) to "circulation of money."

        [See dictionary.reference.com]
        Time Agora
    • not a threat

      BTC represents no threat, not to legal tender, not now not ever, relative to economic growth, BTC is going backwards, and will never achieve a critical mass, its going backwards. Its a failed experiment by computer nerds, but its economics is a train wreck, keep away from me Amtrak.
      Aussie_Troll
    • I doubt that banks are worried.

      anything can be "currency" anywhere in the world, but it doesn't make it government recognized, so it's not legal currency, so it doesn't need to be recognized by any banking institution, so no worries,

      If I live in a town where we only trade in rocks, sure, it's currency within the confines of those town walls, but it means squat to all but the very few outside that town, those exceptions being those that may use US currency to purchase rocks from the central "bank" of that town to use within that town.

      The town can use that money to buy outside goods to bring into the country to then sell for rocks.

      The rocks are worthless as payment anywhere else in the world at "face value", and would not be accepted as payment by the government of the government within that town resides for taxes and services, so yes the town folk can call it a local currency, but that's where it ends.

      Bitcoins are really no different then buying tokens or wrist bands to use at Dave and Busters, or the amusement park.

      Sure they have a value within the park, but outside of that they aren't worth anything to anyone except for those that may want to purchase those tokens for use at D&B.

      Nobody else is required to take it as a form of payment, so yes, it's a currency, no it's nothing the banks need worry about.
      William.Farrel
  • Beads, etc. can (and have) been considered "currency"........

    ......but not necessarily "Legal Tender"!
    kd5auq
    • Reply to "Beads, etc. can (and have) .."

      In Canada the bills used to read:

      "Legal tender for all debts".

      No mention of money of course, because most "money" is not real money but rather "evidence of debt". It is this "evidence of debt" that flows as currency. In Canada, the only real money, AFAICT, is the metal coins. Maybe that's the problem with BitCOIN - it's real money and the banksters don't want people using real money, it might get in the way of debt generation.

      Notice too that it is *legal* tender, not *lawful*.

      And notice too, "tender" can mean "boat" or a vessel. I would presume that this boat floats on the river of currency from the sea of commerce.

      Anyway ..
      Time Agora
      • Bitcoin is more akin to wampum

        It's a medium of exchange, legally recognized or not. It's not legal tender, so nobody is legally required to accept it as payment; and it's not administered by any central authority (governmental or otherwise), making it more like wampum, which nobody had to accept, and nobody controlled, but was nevertheless a widely used medium of exchange among American Indians and the European traders they dealt with. But wampum had decorative value as well, which Bitcoin does not.

        Modern coins aren't particularly valuable in and of themselves, so I don't think they're any more or less money than bank notes are.
        John L. Ries
        • Reply to "Bitcoin is more akin to wampum"

          My point isn't about its legal or lawful status, rather if the banksters consider it a threat.

          As for coins, they usually are issued without bearing debt i.e. issue as "real money", regardless of the value of the metal.
          Time Agora