PARIS/BEIJING: The French and Chinese central banks warned on Thursday that financial institutions should not trade the digital currency bitcoin, saying that it carries inherent risks to financial markets in their domestic economies due to its unregulated nature.

Bitcoin broke above $1,000 per unit last week, quintupling in a month, according to Mt.Gox exchange which manages trading in the currency.

Beyond its volatility, the banks also warned that the currency is not backed up by any real economic activity.

In addition, there are no official security guarantees for the electronic safes which store the virtual currency, making the user vulnerable to cyber attacks.

Further, the convertibility of bitcoin is not ensured and an investor could be unable to regain his investment.

Bitcoins recently made headlines when the US Federal Bureau of Investigation closed the Silk Road website where illegal drugs, forged documents, hacker tools and even the services of hitmen were hawked with payments made using the virtual currency.

The FBI seized 26,000 bitcoins worth $3.6 million at the time