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China bans banks from using Bitcoin

Wanna buy a car but don't got cash?

Today, China's central bank officially barred Chinese banks from offering services connected to the virtual, digital currency Bitcoin. The government also issued a new set of regulations for Bitcoin exchanges in China.

Bitcoin is a currency that transcends political boundaries, but China is quickly becoming Bitcoin's biggest market when you consider that the world's biggest Bitcoin exchange in Shanghai. China, of course, is home to a lot of speculators, and at the moment, the returns on Bitcoin are better than investing in China's booming property market. But it's not without its dangers – and that's where the People's Bank of China -- or the PBOC -- comes in.

"I think the comments we've seen from the PBOC are positive insofar that it is a measured approach and it's not shutting down something that's completely not understood, that they recognize that it does have potential, that they just want to limit it at the beginning at least," says Zennon Kapron, head of Kapron Asia and an expert on all things Bitcoin.

The way to regulate Bitcoin would be to target the Bitcoin exchanges, where you exchange Bitcoin for either a physical good or another currency. And the People's Bank of China did announce that it would require licenses from Bitcoin exchanges inside of China, they'll be required to file trading records and to take measures to prevent money-laundering risks.

In October, a Bitcoin exchange registered in Hong Kong shut down over night, taking more than $3 million worth of people's money along with them. Police finally caught the suspects, but it showed how dangerous investing in this digital currency can potentially be in Chinapart of the reason China's central bank is cracking down on Bitcoin.

About the author

Rob Schmitz is Marketplace’s China correspondent in Shanghai.
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