Two of the world’s largest financial players, China’s central bank and the Bank of America, have opposing views on the virtual currency Bitcoin. China’s central bank says that Bitcoin isn’t a currency with real meaning, while the Bank of America said that the currency has the potential to become a major means of payment.
China has banned financial institutions from trading Bitcoin, saying that the virtual currency does not have the same legal status as other currencies. Bitcoin plunged to below $1,000 following the announcement, from a high of $1,138.58. The value of the currency plunged to $875 at 6:02 PM Shanghai time on BitStamp, a web-based exchange where the virtual currency is traded for “real” currencies.
The People’s Bank of China said that while China’s financial system is not currently threatened by Bitcoin trading, the use of the digital currency has unacceptable risks such as fostering a trading environment of excessive speculations and criminal exploitations. The bank, however, did not impose the ban on individuals, saying that investors can speculate on Bitcoin provided that they assume the risks themselves.
While Bitcoin failed to get its seal of approval in China, it is gaining institutional respect in the United States. A research report on Bitcoin by the Bank of America-Merrill Lynch says that the currency has the potential to become a major means of payment. The report says that Bitcoin could even become a serious competitor to traditional money transfer providers.
The report also noted that while the virtual currency can help users avoid high taxes, capital controls and government seizes, it is highly volatile. Bitcoin traded for less than $1 when it was first introduced in 2009 and BoA now has placed the currency’s maximum value at $1,300 per Bitcoin. Still, the virtual currency is now being accepted by a growing number of companies and can be converted into cash. U.S. government officials also expressed their optimism over the currency. A Justice Department official said that Bitcoins can be a legal means of exchange and Fed Chairman Ben S. Bernanke told Congress last month that currencies like Bitcoin “may hold long term promise.”
