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.
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.
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."