China Bars Banks from Bitcoin Transactions

China Bars Banks from Bitcoin Transactions

By John Ruwitch
and Pete Sweeney

SHANGHAI — China’s government banned financial institutions from trading in bitcoin Thursday, in what analysts said was a restrained first step towards regulating the digital currency that has exploded in popularity in China and soared in value in recent months.

A statement by the central bank and four other agencies said that, while the computer-generated currency doesn’t yet pose a threat to China’s financial system, it carries risks. It didn’t, however, curtail the use of bitcoin by individuals.

“I think it’s measured and it’s positive,” said Zennon Kapron, of the financial consultancy Kapronasia. “It does add legitimacy to the idea that it could be a nationwide accepted currency.”

The value of bitcoins on Chinese exchanges fell after the announcement, however, with one expert predicting the price could halve in the short-term. Digital currencies are generally highly volatile.

Bitcoins have seen their value relative to the dollar skyrocket some 800 percent in the past two months as speculators have piled into the currency, according to

While there is no official data available,

bitcoin market operators say Chinese nationals are major participants in the market and hold an outsized share of the total number of bitcoins in circulation. Shanghai-based BTC China has recently become the world’s largest bitcoin exchange by volume.

A statement on the website of the People’s Bank of China said that the government would act to prevent money laundering risks from bitcoin, which isn’t backed by a government or central bank.

The PBOC may have cause to be concerned about bitcoins, which are anonymous, untraceable, and can be carried on memory sticks or transmitted electronically, because they represent a potential hole in the country’s capital controls.

However, analysts point out that, given the tiny value of the total bitcoins in circulation relative to other currencies, it is unlikely to have much impact on the wider economy.

Eyes On Bitcoin

More cause for worry is the way these digital currencies have engendered a new wave of creative criminality focused on hacking online platforms and stealing bitcoins stored there, and their potential for use in money laundering, bribery and purchases of illicit products such as drugs and weapons.

The government will require trading platforms that deal in virtual currencies such as bitcoin to register with telecommunications authorities, it said.

The notice was issued jointly by the PBOC, the Ministry of Industry and Information Technology, the China Banking Regulatory Commission and the China Securities Regulatory Commission and China Insurance Regulatory Commission.

“This is an industry that will need to be governed or regulated. The safety and the well-being of the common user has to be taken into consideration. All this is expected,” said Ron Cao, Managine Director at Lightspeet Venture Partners, which recently invested $5 million in BTC China.

“‘We’ve got a long way to go. This thing needs to be regulated at some point. We’re studying it. Don’t jump into it.’ My read is that’s the tone of the message.”

Bitcoin traders sold on the Chinese government’s announcement.

On the Chinese platform, the yuan-bitcoin exchange rate dropped as much as about 20 percent after the news before rebounding slightly to around 5,800 yuan per bitcoin in heavy trading.

On BTC-e, the dollar-bitcoin rate had fallen about 11 percent to about $945 from $1,063 before the news.

Cao said he would not be surprised to see the value of bitcoins fall as much as 50 percent over the next week or two.

Many bitcoin proponents say the currency’s volatility will have to flatten out before it can be adopted more widely as a near-frictionless means of payment and regulation may help.

More regulation was likely, although the initial ban on financial institutions may eventually be lifted, analysts said.

“I would be cautious about jumping the gun and taking today’s announcement as indicative as how the space will be regulated in the future,” said Mark Natkin, of Beijing-based Marbridge Consulting.

“Once they have a better idea of how the market works and which players are likely to emerge as the leading players, then they’ll come out with firmer regulations, with more specific licensing requirements,” and possibly minimum capital requirements for firms entering the sector, he said.

Additional reporting by Jonathan Standing, Aileen Wang and Anita li.

  • We work for it. We wish for it. We save it. We spend it. We gain it. We lose it. Above all, we need it. Yes, money certainly does make the world go round.

    In America, that money takes the form of paper bills (printed by the U.S. Bureau of Engraving and Printing) and coins (produced by the U.S. Mint). However, the coins that jingle in your pocket and the bills you stuff in your wallet today are far different from the ones originally produced in the late 1700s.

    As you would expect, over the last 200+ years our currency has seen many, many changes — both big and small. That’s a lot of U.S. money trivia to keep up with! So, WalletPop set out to uncover the most interesting tidbits about American currency and share our favorites with you.

    Read our questions and answers to discover 10 fascinating facts about U.S. currency.

                                   -By Vicki Passmore

    Fascinating Facts About U.S. Currency

  • That depends on the denomination of the note. Here are the average lifespans according to the U.S. Bureau of Engraving and Printing (or the BEP):

    $1 bill – 22 months
    $5 bill – 16 months
    $10 bill -18 months
    $20 bill – 24 months
    $50 bill – 55 months
    $100 bill – 89 months

    Bills that get worn out from everyday use are taken out of circulation and replaced. Coins usually survive in circulation for about 25 years.

    1. What is the typical lifespan of a dollar bill?

  • Just under half of the notes printed by the Bureau of Engraving and Printing are $1 notes. In fiscal year 2009, the exact percentage was 42.3%.

    2. What percentage of bills are $1 notes?

  • Martha Washington is the only woman whose portrait has appeared on a U.S. currency note. It appeared on the face of the $1 Silver Certificate of 1886 and 1891, and the back of the $1 Silver Certificate of 1896.

    3. Has a woman’s portrait ever appeared on U.S. paper money?

  • No portraits of African Americans have appeared on paper money, but commemorative coins were issued in the 1940s bearing the images of George Washington Carver and Booker T. Washington, followed more recently by the release of a Jackie Robinson coin. Paper money does bear the signatures of four African American men who served as Registers of the Treasury (Blanche K. Bruce, Judson W. Lyons, William T. Vernon, and James C. Napier) and one African American woman who served as Treasurer of the United States (Azie Taylor Morton).

    4. Has an African American ever appeared on U.S. currency?

  • The largest bill ever printed was the $100,000 bill; it was actually a Gold Certificate issued in 1934. These notes were used for transactions between Federal Reserve banks and were not circulated among the general public. President Woodrow Wilson was depicted on the bill.

    5. What was the largest bill ever printed?

  • A mile of pennies laid out is $844.80. By this standard, America is about $2.5 million wide, coast to coast.

    6. How wide is America in pennies?

  • The Federal Reserve Bank of San Francisco describes what this motto means and how it came into use:

    7. What does “E Pluribus Unum” mean?

  • The so-called “all-seeing eye” that sits atop the pyramid on dollar bills was included as a reflection of divine providence. This was not the only option that was considered to fulfill that desired theme. A depiction of the Children of Israel in the Wilderness was also discussed as a possibility.

    8. What’s with that creepy single eye?

  • Surprise! Our so-called “paper currency” is actually not paper, but is made of cotton/linen material. It consists of a 75% cotton / 25% linen blend with silk fibers running through it. If it were made of paper, it would fall apart if you accidentally left it in your pants pocket and sent it for a whirl in your washing machine.

    9. What type of paper is U.S. money printed on?

  • As we mentioned before, accidents happen. Fortunately, our “paper currency” is built to take quite a beating. The BEP says it would take 4,000 double folds (first forward, and then backwards) before a note will tear.

    10. How durable is paper currency?

  • According to the BEP, it is. Its website explains: “The BEP redeems partially destroyed or badly damaged currency as a free public service. Every year the U.S. Treasury handles approximately 30,000 claims and redeems mutilated currency valued at over $30 million. Experts examine damaged currency and can approve the issuance of a Treasury check for the value of the currency determined to be redeemable.”

    11. Is a torn up dollar bill still worth anything?

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