People can start using the other network, and once supply of the original currency gets low there will be powerful incentive to do so. We are starting to see that already to a certain extent with Bitcoin.
In this currency the available supply will always be close to 100% of the base because demurrage is taken from every address and given back to miners as part of the block reward. So money that got locked up due to lost private keys will slowly get back in circulation.
Nobody has studied the long term effects of demurrage.
This is true but it is also true for a currency like Bitcoin (before anyone says anything, no, the gold standard was never deflationary during its lifespan). It doesn't make the reasoning behind them any less meaningful.
Savings and loaning out savings are an important part of economic growth, demurrage provides a disincentive for this.
What? Loaning out your savings is certainly encouraged by demurraged. If you just leave your money sitting in your wallet then you'll slowly lose it.