Bank of China Refuses Currency Status for Bitcoins

Are bitcoins a legitimate currency, or more like a speculative investment? That is one of the questions being raised following word that China has decided that its banks cannot use the digital phenomenon as currency.

In an official posting, authorities representing the People's Bank of China said bitcoins "do not have same legal status as a currency" because there is no central monetary authority governing their use and because they can be spent anonymously. The authorities are allowing individuals to use the digital money, as long as users understand the risks. In other words, it is an investment whose value could change dramatically and quickly.

That's exactly what happened on Thursday morning, when the value of each bitcoin plunged from a high of $1,240 to a low of $870 -- a 30 percent drop. The action by the People's Bank of China was the most prominent reason cited by bitcoin-watchers.

'It's a Bubble'

But there were also newsworthy comments on Wednesday by Alan Greenspan, former chairman of the U.S. Federal Reserve Bank. He told Bloomberg News that "you really have to stretch your imagination to infer what the intrinsic value of bitcoin is." He added that, "If you ask me, 'Is this a bubble in bitcoin?' " his reply would be, "Yeah, it's a bubble."

Disapproval at the governmental level is not just coming from the Chinese. On Thursday, the central Bank of France warned that bitcoins are highly volatile, "highly speculative," have nothing to back them up and pose financial risk to those who buy and sell them. While the French bank stopped short of outright banning their use in the future, it did say that if they are used as currency, they must comply with laws relating to money laundering.

Even if major governmental banks do not ban bitcoins as a currency...

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