China's central bank has banned financial institutions from handling bitcoin transactions amid growing concerns about its risks.
Although individuals are still free to use the digital currency, China said that it posed a threat to the country’s wider stability.
Beijing plans to closely monitor trends associated with bitcoin including the possible use of the currency for illegal activities.
“The concern is that it interferes with normal monetary policy operation,” Hao Hong, head of China research at Bocom International Holdings told Bloomberg.
“It represents an unofficial leakage to the current monetary system and trades globally. It is difficult to regulate and could be used for money laundering. I think the central bank is right to make this move.”
Bitcoin is a form of electronic money created by an unknown developer in 2008 as a peer-to-peer currency and is traded through online networks such as Mt. Gox.
It is not managed or traded by any single company or government and the currency’s release is tightly controlled by software running a set of algorithms.
The currency has been rapidly rising following a Senate hearing on virtual currencies in which bitcoin was described as a “legitimate financial service”.
Earlier this year, the Winklevoss twinsfiled plans with US regulators to establish the Winklevoss Bitcoin Trust, a vehicle that will give investors exposure to the currency.
