Synthetic central bank digital currency (sCBDC) — Public private CBDC collaboration

Authors: Anna Maria Bracio, Jonas Gross

Central bank digital currencies (CBDCs) more and more approach reality. One special form of a CBDC is a synthetic CBDC (sCBDC). In such a setup, the CBDC system is not directly managed by the central bank, but a wide range of tasks is outsourced to private companies, such as e-money institutes. In the case of such a private public partnership, financial institutions fully back e-money with riskless central bank money. This results in a synthetic CBDC, a digital form of (e-)money that is fully backed by riskless central bank money. In this article, we explain and discuss such an sCBDC system in the context of the Euro area and compare it to a “classical” CBDC system.


The term sCBDC was introduced by Tobias Adrian and Tommaso Mancini-Griffoli from the International Monetary Fund (Adrian 2019; Adrian, Mancini-Griffoli, 2019). After few central banks such as the Hong Kong Monetary Authority and the Swiss National Bank have given e-money providers necessary licenses for issuing sCBDCs (Adrian, Mancini-Griffoli, 2019, p. 12), the idea of sCBDC is now beginning to become more and more relevant. It seems that new innovations by the private sector as well as innovative competition from international financial institutions, force central banks like the European Central Bank (ECB) to take action and think about their future role in the monetary system. This article explains sCBDC as one special form of a CBDC and analyzes the relevance of sCBDC for the Euro Area.

What is an sCBDC?

E-money: a step to understanding sCBDC

How e-money works

Figure 1: E-Money setup

Source: Adrian and Mancini-Griffoli, 2019, p. 7.

Figure 1 illustrates how a simple setup of e-money issuance works. In this e-money setup, the two main actors are the issuer and the end user. An end user could e.g., also be certain distributors who wish to exchange Euro for e-money to then further distribute the e-money to other customers. The end user, in general, intends to hold a certain amount of money in Euros as e-money units. This could be due to the following benefits of e-money. First, the use of e-money is proving to be quite convenient in the face of digitalization, particularly due to EMIs having a potentially higher level of experience in the field of user-centered design as well as social media integration (Adrian, 2019). Second, transaction costs are typically relatively low, trust in fintech companies is in some countries higher than in banks (Adrian, 2019).

The EMI creates e-money digitally and exchanges e-money units at a one-to-one exchange rate (Adrian, 2019). Note that EMIs are not allowed to grant loans with corresponding interest rates. EMIs earn income from the fee that is charged to exchange Euros into e-money units. The EMI hold end users‘ Euros, mainly in the form of bank deposits (Adrian, Mancini-Griffoli, 2019). This means that the Euro amounts of each individual user are held in one or more pooled accounts at the EMI’s chosen bank. By doing so, there is a certain prudential risk: the EMI’s bank deposits consisting of the individual amounts from the end users can be given out as loans from the bank to other creditors. These creditors might not be able to pay back their loans, and thus the EMI has the risk of not being able to offer redemption on demand at face value. Moreover, a default risk of the EMI exists as well (Adrian, Mancini-Griffoli, 2019). To raise trust and security of end users and their Euros in hindsight of default risk, the EMI can interpose a trust fund, into which it pays the end users‘ Euro units. In this case, the trust holds the money instead and authorizes the EMI to issue e-money based on the money that functions as the claim to redemption at face value.

To sum up the e-money setup: The end user requests to exchange Euros for e-money units and pays the amount it would like exchanged to the EMI. The EMI then pays this amount into the trust fund or directly into its bank account. This money works as a backup of the e-money units that the EMI issues to the end user.

Overview: E-money in Europe and Germany

Figure 2: Number of EMIs per Euro country

Source: (2019).

These EMIs have all been approved by the BaFin in Germany and the ECB. EMIs do not merely have to focus on issuing e-money but can be companies initially focused on different products and services intending to attract a larger customer pool or to add a more flexible, modern, and faster payment method to their current options.

Now that we have discussed how e-money is issued and distributed in the Euro area, we can discuss the concept of an sCBDC.

The role of the central bank with sCBDC

As shown earlier in the e-money setup, a trust holds the money that was given to the EMI from the end user (see Figure 2).

Figure 3: Synthetic CBDC setup

Source: Adrian and Mancini-Griffoli, 2019, p. 14.

In the sCBDC setup (see Figure 3), the trust does not hold the money in a bank deposit, but in central bank reserves. The trust receives sCBDC units digitally in the value of the money that it holds for the EMI from the ECB in the form of central bank reserves. Central bank reserves held by the ECB are set aside in a certain amount by the ECB. This amount cannot be used for any other purposes other than to convert the value of these reserves into sCBDC, which are transferred to the trust account. After receiving the sCBDC, the trust then gives the EMI the authorization to issue e-money in an equivalent amount to the end user. The e-money issued to the end user is consequently fully backed by central bank reserves and constitutes an sCBDC. Note that hiring the trust as a third-party is not mandatory. By involving the trust, the EMIs may obtain stronger trust from the end users regarding backup and redemption credibility.

When forming such a partnership with EMIs, the ECB has to carry out specific tasks. First, it is responsible for the provision of central bank reserves so that sCBDC can be issued to the trust or directly to the EMI. Secondly, the ECB must regulate the amount of reserves used to convert into sCBDC and supervise an adequate use thereof. Thirdly, the ECB must decide which EMIs it will allow access to its reserves. Lastly, the ECB is in charge of the necessary licensing and policy-making to be able to introduce sCBDC to the Euro area within the setup.

The EMIs have to fulfill the tasks of choosing and developing the technology for the issuance of e-money, customer management, customer screening, and monitoring. Besides general Know-Your-Customer (KYC) duties, this includes measures preventing money laundering and terrorism financing.

sCBDC vs. CBDC: What’s the difference?

Another advantage of sCBDC relative to CBDC is that disruptions to the current systems and infrastructures are relatively small. One change is that access to central bank money is extended, so that central bank money is distributed to e-money institutes. However, in contrast to CBDC, the ECB would not have to introduce a new legal tender with all its legal consequences. Further, the innovative private sector distributes and manages the sCBDC so that more innovations can be expected compared to a situation where the public sector is in charge.

Note that there are also disadvantages of sCBDCs. First, the holder of an sCBDC has a claim against the e-money institute. As this claim is 100% backed by central bank money, it seems unlikely that the e-money provider will default. Nevertheless, default is in theory possible. This makes an sCBDC riskier than a CBDC. Second, interoperability is not ensured. Similar to current e-money, e-money constitutes a claim against one specific e-money institute, does not have the same risk level, and is, therefore, not interoperable usable.

The role of Monerium and Alipay

In addition to Monerium, Alipay is quietly penetrating the European financial market. Alipay has received an electronic money license in Luxembourg and can serve the European market via passporting. Since the central bank of China requires the country’s large payment providers, Alipay and WeChat Pay, to hold client funds at the central bank in the form of reserves (Adrian, Mancini-Griffoli 2019), this sCBDC setup already exists today for Alipay payments in the Euro area.


What about the difference between bank money in the form of bank deposits and an sCBDC? While bank deposits constitute a claim on the bank, the sCBDC constitutes a claim on the e-money potentially hold a trust, which is fully backed by central bank money. It is, therefore, an indirect claim on the central bank. As central bank money is less risky than bank money as there is no counterparty risk in case a trust is used in the system, the default risk for clients declines. This is why such an sCBDC system is promising since it is a riskless form of money without the necessity of the central bank to allocate great resources to CBDC.

The goal of Monerium to issue such a sCBDC shows how serious the discussions about sCBDC are in the Euro area. Chinese e-money providers, such as Alipay, already have access to Chinese central bank money. If a Euro sCBDC will be available in the Euro area soon remains to be seen.


Jonas Gross is a research assistant at the University of Bayreuth and project manager at the Frankfurt School Blockchain Center (FSBC). His main fields of interest are crypto assets. In addition, he analyzes the implications of blockchain technology on monetary policy of the worldwide central banks in the context of his Ph.D. thesis. His main focus is on innovations such as central bank digital currencies (CBDC) and stablecoin projects like Libra. You can contact him by mail (, LinkedIn (, via Xing ( and Twitter (@Jonas__Gross).

This article was written in the context of a seminar about cryptocurrencies and central bank digital currencies (CBDC) at the University of Bayreuth. The seminar was offered by the Chair for International Economics and Finance (VWL I).


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