Yes and no. If you hit a period of deflation or if the tax rate fluctuates this might happen, but it's really no different from putting your money in precious metals or artworks.

Otherwise as long as the tax rate is lower than the inflation rate (and it is intended to be) money stored as cash will be losing value (this might need to be promoted, but that's part of lifting financial literacy overall). The well-off / financially savvy will know better, and the least-well off will hopefully fall below the waive-it threshold anyway.

Any group of well-of individuals doing tax-avoiding transactions of any value on a large scale should be a) easy enough to detect and b) can be hit with tax-evasion penalties due to the requirement to declare transactions over a certain value, and a sub-clause about not-splitting transactions purely to disguise the amount.

If you receive money electronically you take the same hit whether you take it out as cash to hoard it or whether you move it (once) into an interest-earning account, which would you chose?

On a day-to day basis I understand a lot of people find it much easier to budget and stick-with-budget if they have that very physical limit there in front of them, so I don't believe that cash is completely obsolete just yet.