People's Bank of China has officially outlawed Bitcoin transactions among local banks and financial institutions, pointing to the high risks of money laundering and potential association with illegal activities.
Noting that the virtual currency was "limited" by its anonymity and lack of a central monetary controller, the central Chinese bank said it had issued an advisory to all banks and financial institutions in the country, forbidding them from handling any Bitcoin transactions.
The announcement comes just weeks after it said it had no plans to recognize the legitimacy of Bitcoin, but would not stop the use of the virtual currency among online users.
In a statement published Thursday as a Q&A on its website, People's Bank of China said it had been monitoring the development of Bitcoin and had concerns about the currency's lack of legal status as well as its small trading volume. It pointed to the risks of a currency that had no price limit and its potential links to money laundering, due to the anonymity and lack of geographical restrictions. The currency can be easily exploited for criminal activities, it added, pointing to Bitcoin's strong association with the sale of drugs and guns, and illegal websites.
In considering all these points, among several others, the central bank concluded the risks associated Bitcoin meant the currency could not meet the requirements to be recognized as part of China's financial system.
It said it would not stop the online community from transacting with Bitcoin, but warned that these users should be prepared to bear the risks associated with the currency.
Currently, there are about 12.08 million Bitcoins in circulation, each valued at just under US$1,045.
People's Bank of China said it would work with the relevant ministries, regulatory boards, and financial institutions on identifying the necessary steps to ensure the implementation of its advisory note. Until then, all banks and financial firms should assume responsibility for advising the public on the use of Bitcoins.
The country is home to the world's largest Bitcoin trading platform, via BTC China.
Just this week, a website selling contraband goods disappeared with a Bitcoin haul estimated to be worth as much as US$100 million. Sheep Marketplace, which emerged after the Silk Road website was taken down by U.S. authorities, claimed it was a victim of a theft, though some believed its administrators had scammed its vendors, most of whom had traded drugs and guns on the website.