The Chinese central bank has banned banks from transacting in Bitcoin, classifying it as a ‘virtual good’ rather than a currency.

While individuals are free to trade in the currency, the central bank has said it is concerned about the volatility of Bitcoin and its use as a tool for money laundering and by criminal gangs.

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The regulator said in a statement: "Judged by its nature, Bitcoin is one particular kind of a virtual product. It does not have the legal status of a currency, and it cannot and moreover should not be allowed to circulate in the market as a currency.

"Although there are people calling it a ‘currency’, it is not issued by the monetary authority, it does not possess the attributes of a currency such as legal repayment and enforcement abilities."

The central bank also said that the digital currency had no "real meaning".

Bitcoin’s value tumbled by 28% after the announcement, but regained stability later in the day.

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The Chinese government’s clampdown came just hours after the Bank of France warned its citizens against trading in Bitcoin.

The central bank said: "Even if Bitcoin is not currently a credible investment vehicle and therefore does not pose a significant risk to financial stability, they represent a financial risk for those who hold them."

In the last few weeks the Dutch Central Bank said: "The exchange rate is volatile and there is no central issuer which may be held liable."

 

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