The People's Bank of China (PBOC) said on Thursday recommended that banks should not trade Bitcoin, the virtual currency that has seen a sharp rally in virtual money trading exchanges lately. The central bank of China said although Bitcoin has yet to pose a threat to the financial system of the mainland, the virtual currency carries risks. The central also said in a statement published on its website that it would be launching countermeasures against money laundering using Bitcoin. Bitcoin has yet to get support from a government or a central financial institution.

Bitcoin, along with other virtual currencies generated by computers, saw their trading values increase to the highest levels in the last few months as interest in the virtual currency in speculators have peaked. According to operators of Bitcoin trading exchanges, majority of the investors who had helped drive up trading activity in the virtual currency are the Chinese.

PBOC is concerned about the popularity of the bitcoins, citing the fact that the virtual currency can be anonymously traded and can be carried via virtual wallets or memory sticks, said the report. The report also added that the surge of bitcoins could cause a potential hole in the closed capital account of the country.

However, analysts have pointed out that the rise of the Bitcoin could not affect the wider economy, as the total number of bitcoins in circulation as compared to other currencies is relatively tiny.

On the other hand, Bloomberg said the virtual currencies' convenience could also spark a proliferation of creative crime and encouragement of illegal activities like money laundering, bribery and the buy-and-sell business of illicit products.

PBOC also added in its statement that it will require trading exchanges to be registered with telecommunications authorities in its efforts to curb any illegal activity that Bitcoin could illicit. Moreover, the Chinese central bank also said that it will allow ordinary people to deal with virtual currencies and that they would have to take on the risk themselves.