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China bans virtual cash for real-world trade

Peer-to-peer transactions only

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Officials in China are banning use of virtual money to buy real-world goods and services.

Under new regulations released jointly by the Ministry of Commerce and the Ministry of Culture, virtual currency can now only be used for virtual goods and services that are provided by the issuer of the virtual currency.

Several sites are reporting the news as targeting China's online gold-farming market, but there is no indication that selling virtual currency is being forbidden.

The new regulations do define prepaid cards for video games - but according to the Ministry of Commerce, the rules are to limit the impact of virtual money on the country's real financial system.

Those caught using virtual money for gambling will also be punished by public security authorities, the Ministry said. The Ministry of Culture added it will step up supervision of of money laundering using virtual money and "other illegal online activities."

Virtual money has been fingered as a source of under-the-table payments, laundering, theft and fraud by China's government. In particular are "QQ coins" issued by Tencent.com, one of the country's top internet community operators with over 220 million users.

China's government-run media outlet Xinhua explains in a 2006 report that QQ coins were originally intended to be used to buy Tencent.com services such as electronic greeting cards, avatars, virtual game chips, and Tencent software. But many users began trading the currency amongst themselves and in exchange for other goods and services - and more worrying for China's government - real yuan.

The practice had apparently become so widespread and publicized, some regulatory officials began worrying it could challenge the legitimate currency of China. Xinhua claims trade in virtual currency exceeded several billion yuan last year and increases at an average rate of 15 to 20 per cent annually.

The occasional real-world slaying over virtual goods couldn't have helped either.

In a statement following the decree, Tencent said it supported the new rule and would work with authorities to combat online crimes. ®

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