Just too many problems they haven't thought through ! Or even realized.
I'll bet anything this will forever remain a pilot in the treasury depts' cafeteria !
Also Hw token / wallet will need to connect over the internet to another hw token/ wallet. Unless they want only physically proximate txns like BLE NFC.
And need OTA updates unless you want to replace tokens twice a year whenever u find a new bug in hw / fw.
So hackers will have full time physical access to these devices connecting to each other to reverse engg and just keep playing till they find an inevitable bug.
And hw token will necessarily need to be secured by a pin/pwd due to numerous issues. But we cant recover w/o personally identifiable info, so your fingerprint is the the only option possible (for a smartcard)
And FP anyway govt needs to prove 'owner present' transactions else people will FedEx the hw tokens preloaded with large amounts to each other which will be better than cash for criminals.
Finally, having a hw token and no ledger means when, not if, your card stops working the money is gone forever so people are simply going to have a limit they keep on it - like not more than $1000 or 500 or such.
And all this HW + Pin/FP means it will never be useful for automated transactions at all (anything similar to smart contracts) w
Which is the only plus point of digital currencies (beyond anonymity, which is better with cash)