China Tries to Slow Down Bitcoin

Currency used to be a measure of actual value; there was a time when you could trade currency for actual gold and similar things of real value.

While nowadays currencies are not usually tied to gold, they are still a little less random than BitCoin.

The virtual currency first introduced through a paper in 2008 has become a hot commodity and a recent topic of much concern, given that it is unregulated, intrinsically worthless and currently subject to a speculative bubble.

That in mind, the People’s Bank of China has just issued a statement saying Bitcoin isn’t a currency with real meaning and that it doesn’t have legal status.

The price of Bitcoin plunged by more than 20 percent on the BitStamp Internet exchange after news that China was not letting the currency be a stand-in for real currency in the country.

China is the world’s biggest trader of Bitcoin, and that has led some businesses to start accepting the currency as if it were real.

A local branch of China Telecom (News - Alert) is accepting Bitcoin as deposits for a new Samsung mobile phone, for instance.

“The concern is that it interferes with normal monetary policy operation,” said Hao Hong, head of China research at Bocom International Holdings in Hong Kong, as reported by Bloomberg (News - Alert) News. “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.”

The central bank has said that financial institutions and payment companies can’t price in Bitcoins, buy or sell the virtual currency, or insure Bitcoin-linked products.

Chinese citizens can still play with Bitcoin, but it shouldn’t be seen as an actual currency or used as such.

There also is talk in China about drafting rules for trading platforms the assist the buying and selling of virtual money, Bloomberg reported.

“We’re happy to see the government start regulating the Bitcoin exchanges,” CEO Bobby Lee of BTC China, the largest Bitcoin exchange in the country, said in a phone interview before the announcement.

He said regulation would be good for the consumer, and help the currency become something that could buy goods and not just be useful as speculation.

The trouble is that Bitcoin is popular precisely because it goes around Chinese monetary control. That’s why China is trying to stop the virtual currency’s momentum.

There is definitely an inherent tension between China and a currency that cannot be controlled.