Programmable Re-Coupling: Monetary Policy Transmission and the Design of Central Bank Digital Currency

The transition from physical cash to digital payments has weakened the behavioural channel through which monetary policy transmits to household spending decisions. This paper formalises this degradation through the Coupling Coefficient (Φ ∈ [0,1]), a parameter measuring the alignment between central bank policy intent and realised household-level response. I show that standard digital payment systems (exemplified by India's Unified Payments Interface) operate at low Φ because they eliminate the cognitive friction-the "pain of paying"-that physical cash provided automatically. A Central Bank Digital Currency (CBDC) with activated programmability features (remuneration, purpose-binding, and calibrated cognitive friction) can restore and potentially exceed the coupling efficiency of cash. I derive the Programmable Re-Coupling Hypothesis: ΦCBDC > Φcash > ΦUPI, subject to scope conditions in welfare transfer contexts. Using India's e-Rupee pilot as the primary case study, and drawing on the Bank for International Settlements' CBDC research framework for cross-jurisdictional context, I analyse the design parameters that determine a CBDC's monetary policy impact. The analysis identifies a structural tension: the features that strengthen transmission (remuneration, programmability) are precisely those that threaten financial stability through bank disintermediation. I propose an optimal design space that calibrates CBDC adoption to maintain financial stability while enabling targeted policy transmission, and derive three testable empirical propositions for household behaviour under programmable CBDC regimes.