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.


Today, central bank digital currencies (CBDCs) are discussed all over the world. According to a study by the Bank for International Settlements (BIS), 80% of worldwide central banks currently analyze the issuance of a CBDC (Boar, Holden, Wadsworth, 2020). One special CBDC form is so-called synthetic CBDCs (sCBDCs) as a special form of public private collaboration. An advantage of an sCBDC compared to a CBDC is that in such an sCBDC setup the central bank has fewer responsibilities as in a CBDC system, therefore, needing fewer resources and being able to focus on its core competencies.

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?

Based on Adrian (2019) and Adrian and Mancini-Griffoli (2019), sCBDC can be described as a type of CBDC in the form of a public private partnership in that e-money providers get access to central bank money in the form of central bank reserves, thereby being able to hold and transact in the latter. In such a CBDC system, e-money providers would play an important role.

E-money: a step to understanding sCBDC

Let us first start with the definition of e-money. The ECB (2020) defines e-money as “an electronic store of monetary value on a technical device that may be widely used for making payments to entities other than the e-money issuer.“ “Monetary value“ can be un­derstood as the value of a product, object, or service converted into standardized monetary units. The “electronic store of monetary value“ can consequently be understood as the digitalization and holding thereof, including savings in the form of bank deposits or cash. If a mobile phone is used for holding and transacting e-money, the user will pay the monetary value she or he wishes to convert into e-money units to the e-money issuer typically via an app on a mobile phone. The user will then receive e-money units on his or her mobile phone via the app. The mobile phone hereby functions as a prepaid bearer instrument, as stated above.

Imagine an e-money institution (EMI) intending to issue e-money to end users in Germany. To be legally allowed to do so, the EMI must first be granted permission by the ECB and the German Federal Financial Supervisory Authority (BaFin) to issue e-money. Once the permission is authorized, the EMI can begin issuing e-money.

Figure 1: E-Money setup

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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.

The number of EMIs per Euro area country is depicted in Figure 2. Totaling 227 throughout the Euro Zone, the number of EMIs on the national level range from 0 to 36. Note that in theory, also banks could issue e-money. However, they have to file and receive a respective license. We observe that Belgium is the leader in the number of EMIs (36), followed by Lithuania and Portugal (both 27). Germany is located in the lower end with 8 EMIs, e.g., ReiseBank AG, Deutsche Post Zahlungsdienste GmbH, and Esprit Card Services GmbH.

Figure 2: Number of EMIs per Euro country

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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

Circling back to the definition of sCBDC as stated in the introduction, sCBDC can be described as a type of central bank digital currency in the form of a public private partnership in that e-money providers can keep client funds as central bank reserves, being able to hold and transact in the latter (Adrian, 2019; Adrian, Mancini-Griffoli, 2019). According to Mancini-Griffoli et al. (2018), CBDC are a “digital form of fiat money that could be legal tender.“ Above, we have addressed the “private“ aspect of the partnership in that sCBDC can be created. The ECB conducts the “public” part of the partnership.

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

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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?

sCBDC can be seen as a specific form of a CBDC. For a detailed discussion on CBDCs, see Klein, Gross, Sandner (2020). When referring to sCBDC, one might wonder what the term “synthetic“ implicates. The answer lies in the public private partnership between the EMI and to whom the central bank provides its reserves to. In the case of a CBDC, central banks are the operators of the CBDC system and — in the case of an account-based CBDC — offer accounts to the public (Adrian, 2019). In a synthetic CBDC setup various tasks are outsourced to private sector e-money institutes, which are “all sources of substantial costs and risks“ (Adrian, 2019). The ECB, in this case, would only be responsible for managing some tasks, therefore, saving resources (see above). Hereby, the central bank is not offering accounts to the general public but instead to private EMIs, who then use the sCBDC as a 100% backup for their e-money. This is an important difference between CBDC and sCBDC.

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

Does an sCBDC already exist today? Monerium is an Icelandic e-money provider founded in 2015 and is now the world’s first and only certified EMI for fiat currencies on blockchain systems (Monerium, 2019). Monerium offers various currencies such as US dollars, Icelandic krona, Euros, and British pounds and aims to provide e-money backed by any fiat currency of the customer’s choice later. Monerium uses the Ethereum blockchain and fully backs the digital money with fiat currencies that are kept in traditional bank accounts and act as backup. Monerium has already passported its license to Denmark, France, Germany, Lithuania, Sweden, and the United Kingdom that allows them to provide services to customers and partners in seven European countries. Monerium shows interest in synthetic CBDC by referring to the IMF’s paper by Adrian and Mancini-Griffoli (2019) on their blog. If Monerium would indeed offer an sCBDC, it would gain access to the Icelandic central bank reserves, and an sCBDC would be created through this setup.

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.


An sCBDC is a promising form of a CBDC in case central banks decide to engage in partnerships with e-money providers in terms of the CBDC issuance. Central banks could decide to enter such partnerships in order to issue a CBDC, on the one hand, but, on the other hand, to outsource specific tasks to e-money providers — such as KYC — or infrastructure-related tasks. Consequently, central banks could focus on their core businesses without the necessity to spend the majority of their resources into managing and distributing CBDC units. E-money providers only need access to central bank reserves.

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.


Anna Maria Bracio is a student in International Economics and Development at the University of Bayreuth. She has developed an interest specifically towards intercultural management and communication throughout her studies but always enjoys exploring topics from other fields of research, such as cryptocurrencies and CBDC. Anna first came across CBDC in a seminar she was taking at the University of Bayreuth.

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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