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Bank of France Adds to Bitcoin Warnings

12/05/2013 | 12:56pm US/Eastern

PARIS--Holders of the virtual currency bitcoin are open to financial and legal risks, the central bank of France said Thursday in a report that identified flaws in the unregulated currency.

"Even if bitcoin does not today meet the conditions to become a credible means for investment that could therefore threaten financial stability, it represents a clear financial risk for those that hold it," the Bank of France said in the report

The central bank said the us of bitcoins as an investment tool is limited because there is no underlying asset and the virtual currency is subject to high volatility. Speculators are also at risk, the bank said, as they would have no legal recourse if they are victims of theft from hackers, and could be caught out if nobody wants to buy their bitcoins.

"The system can collapse at any moment if investors want to unwind their positions but find themselves holding portfolios that have become illiquid," the report said.

The report also said the risks mean there is little-to-no reason for retailers to accept the currency, apart from as a means of self-promotion.

The report coincides with a statement from the People's Bank of China, which said it doesn't consider bitcoin to be a real currency and financial institutions should not provide bitcoin-related business services.

Beyond the risks to investors, retailers and speculators, France's central bank, like China's, also flags the dangers of bitcoin as an anonymous currency that can be used for illegal activities, including money laundering and terrorism.

Write to William Horobin at william.horobin@wsj.com

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