Looking at this question on Quora HERE ("Are data stored in registers and memory in hex or binary?"), I think the top answer is saying that data persistence is achieved through physical properties of hardware and is not directly relatable to either binary or hex.
I've always thought of computers as 'binary', but have just realized that that only applies to the usage of components (magnetic up/down or an on/off transistor) and not necessarily the organisation of, for example, memory contents.
i.e. you could, theoretically, create an abstraction in memory that used 'binary components' but that wasn't binary, like this:
100000110001010001100
100001001001010010010
111101111101010100001
100101000001010010010
100100111001010101100
And then recognize that as the (badly-drawn) image of 'hello', rather than the ASCII encoding of 'hello'.
An answer on SO (What's the difference between a word and byte?) mentions that processors can handle 'words', i.e. several bytes at a time, so while information representation has to be binary I don't see why information processing has to be.
Can computers do arithmetic on hex directly? In this case, would the internal representation of information in memory/registers be in binary or hex?