Bitcoin gets cautious nod from China’s central bank

The statement comes during a week of remarkable turbulence on China’s numerous Bitcoin exchanges.

Written by New York Times | Beijing | Published: November 24, 2013 6:03:32 am

This week,the Chinese government issued its most direct statement to date on the legitimacy of Bitcoin,the thus-far-unregulated digital currency that has taken China,the United States and other countries by storm in recent months.

Speaking at an economic forum on Wednesday,Yi Gang,the deputy governor of the People’s Bank of China and director of the State Administration of Foreign Exchange,said that it would be impossible for China’s central bank to recognise the Bitcoin as a legitimate financial instrument in the near future. But,Yi added,people are free to participate in the Bitcoin market and he would personally adopt a long-term perspective on the currency.

The statement comes during a week of remarkable turbulence on China’s numerous Bitcoin exchanges.

On BTC China,the world’s largest exchange platform for the digital currency,the value of a Bitcoin more than doubled from about 3,000 renminbi,or about $500,on Sunday to nearly 7,000 renminbi on Tuesday. By midday on Wednesday it was back below 4,000 renminbi and on Friday it was hovering around 5,000 renminbi.

Such volatility in large part reflects uncertainty over how the Chinese government — as well as other governments — may decide to regulate the currency. As a result,even minor policy or media signals have triggered wild fluctuations in the currency’s value.

Analysts suspect that the currency’s sharp rise on Tuesday came in response to the United States Federal Reserve chairman Ben S Bernanke’s letter to the United States Congress,in which he wrote that financial innovations like Bitcoin “may hold long-term promise,particularly if the innovations promote a faster,more secure and more efficient payment system”.

Favourable media coverage on CCTV,China’s state-run broadcaster,has also pushed up the currency’s value. A segment that aired on October 28 about the world’s first Bitcoin ATM,in Vancouver,precipitated a rise on China’s Bitcoin exchanges.

Although Yi’s remarks were the most direct government statement to date,his words are far from conclusive. He stopped short of calling Bitcoin illegal and he explicitly stated that ordinary Chinese citizens retain the freedom to trade in Bitcoins,given its status as a form of online trading.

At the same time,China has historically maintained very strict control over the renminbi,and some experts speculate that the government could still outlaw or restrict Bitcoin if it grows too large or proves socially or financially destabilising.

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