If a country entirely phased out cash and replaced it with digital currency would it become destabilized?
It depends on the country. From where I come from, it simply won't survive. This digital era has not yet reached many corners of my place. The majority does not have smart phones, much less internet. Digitalized transactions in the market will be very foreign to them. I don't know in other countries who are much more advanced if it is possible.
Exactly! The removal of cash from any state depends on the level of technology used there. If all citizens are well educated and have access to internet all the time, they can go with cashless society but the developing countries cant think of going cashless at least for coming century. Even the developed countries wont completely go cashless. They can use digital and paper money parallel.