India’s digital rupee ambitions face key questions as Hong Kong’s CBDC experiment highlights concerns over privacy, programmability and real-world use
New Delhi:
India has been quietly building its digital currency story. The Reserve Bank of India launched the digital rupee pilot in 2022, and since then the experiment has steadily expanded in ambition. The RBI is now in active discussions with several central banks to enable cross-border payments using CBDCs. In February 2026, India launched its first CBDC-based Public Distribution System in Gujarat, where programmable digital tokens were used to deliver subsidised grain directly to beneficiaries, bypassing the usual chain of intermediaries. The direction is becoming increasingly clear: India wants its digital currency to address long-standing problems in welfare delivery and remittances, not merely process payments. That ambition deserves closer scrutiny, and perhaps the most instructive place to look is Hong Kong.
What Hong Kong found
Over two years, the Hong Kong Monetary Authority conducted one of the world’s most comprehensive retail CBDC experiments. Eleven groups of major financial institutions, including BlackRock, HSBC, Mastercard and DBS, tested the use of its CBDC across settlements, programmable payments and offline transactions. The findings, published in late 2025, were significant.
On programmability, the pilots showed that when digital currency carries conditions, such as vouchers that can only be spent in specific ways, the efficiency gains came from smart contracts rather than the CBDC itself. Smart contracts execute transactions automatically once conditions are met and can function across multiple settlement mechanisms. In other words, payments do not necessarily require a CBDC to become programmable.
On offline payments, Hong Kong’s existing systems already serve 98% of the population. Users saw little incentive to switch, merchants were reluctant to absorb new costs, and the report found no convincing business case. Most importantly for India, privacy concerns emerged as a serious barrier. Around 35% of users said they would avoid the digital currency for routine transactions because they did not want the central bank accessing their spending data. That concern persisted even within more controlled and private network environments.
Why India should pay attention
India’s context is undeniably different. UPI has not solved everything: welfare leakages remain a concern and remittance costs continue to stay high. There is a legitimate argument that programmable digital money could address problems a simple payment application cannot. But Hong Kong’s experience serves as a caution against overpromising.
There is also a more difficult question that India has not yet confronted openly. Programmability, by design, restricts how funds can be used. A token redeemable only for grain at an authorised outlet cannot be redirected to purchase medicine during an emergency. The very feature that prevents a ration dealer from diverting supplies may also limit a beneficiary’s ability to make independent choices. India must therefore decide what kind of welfare architecture it ultimately wants to build. A system based on transfers programmed to function only under certain conditions, such as vouchers restricted to grain purchases, will inevitably introduce greater restrictions and traceability. In that framework, the erosion of privacy may not be accidental, but a deliberate design feature of the system itself.
On offline payments, UPI already processes more than 18 billion transactions every month, with roadside vendors and auto-rickshaw drivers accepting QR payments across urban India. For rural households or beneficiaries without smartphones, an offline CBDC, designed to function between two devices even when neither is connected to a network, may still not be the solution. A digital token that requires a compatible device and periodic internet synchronisation is not necessarily simpler than cash. And if the system becomes unavailable or remains unfamiliar to users, it risks failing precisely when it is needed most.
What India actually needs to answer
Hong Kong ultimately concluded that its digital currency appears more useful in wholesale markets than in retail payments. As the digital rupee scales, these are the questions India’s policymakers will increasingly need to confront. Ambitious goals may be defensible, but they still require commercially viable models, robust privacy safeguards, and a clear-eyed assessment of what a CBDC can uniquely deliver — and what it cannot.
