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China central bank warns banks against use of bitcoin

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China's central bank warned on Thursday that financial institutions should not trade the digital currency bitcoin, saying that while it does not yet pose a threat to China's financial system, it carries risks.

The central bank also said in a statement on its website that it will act to prevent money laundering risks from bitcoin, a prominent digital currency that is not backed by a government or central bank.

(Read more: As bitcoin tops $1200, its fate could rest in China)

It said however that ordinary individuals were free to use bitcoin, so long as they took on the risk themselves.

It will also closely monitor risks associated with bitcoin. Those risks include the possible use of the currency for illegal activities and for speculation, it said.

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