Cash or crypto, worry over money is real
There were warning signs aplenty back in February that Canadians’ trust in money is especially fragile right now.
The so-called “Freedom Convoy” was blocking the streets around Parliament Hill, and the federal government had just imposed the Emergencies Act, vowing to “follow the money” and put the squeeze on organizers who were threatening public safety.
The big banks were all given a few days’ heads-up that they would have to co-operate with Ottawa, dig through their records and stop the flow of contributions that was discretely paying - through digital, cryptocurrency or traditional means - for the increasingly intransigent protesters to stay in the streets.
But credit unions - those smaller, provincially regulated institutions so popular in the same little towns and rural areas - were taken by surprise, not just by the government measures, but also by their own customers.
They raced to their local branches and withdrew millions of dollars, fearing the government was about to seize their savings.
“The government was less than clear about the intended targets of financial measures under the Emergencies Act,” Martha Durdin, president and CEO of the Canadian Credit Union Association, told parliamentarians recently.
“Many of our members expressed this concern, and many Canadians made significant withdrawals from credit unions as a result, sometimes in the hundreds of thousands of dollars, and on a few occasions, millions,” Durdin said.
Fortunately, the credit unions were able to absorb the sudden withdrawals, and there wasn’t a full-fledged run on them. But as one credit union leader told Durdin, “We had a tremendous amount of members very seriously concerned regarding the government’s ability to seize accounts; it brought forward a large sense of mistrust with the government that they could just seize individuals’ accounts.”
That rough period has passed, and in the end, credit unions temporarily blocked about 10 accounts worth less than half a million dollars. The federal measures were meant to target illicit donations to a cause deemed out of bounds, and most Canadians steered clear of that kind of activity.
But it’s clear from the parliamentary committee hearings that customers’ trust in their savings was rattled, even if they weren’t swept up in a crackdown that may well have been warranted and well-intentioned.
The Emergencies Act isn’t the only thing that has Canadians looking hard at where they keep their money. The world is awash in financial sanctions against Russian oligarchs.
And while few Canadians have any connection to that kind of activity, it’s a reminder that the state can, and will, seize assets and money if it sees a good reason to.
At the same time, digital currencies are sending our traditional banking systems into conniptions. A new assessment of financial system risks in Canada, issued for the first time this week by the country’s banking regulators, shows that innovations such as cryptocurrencies, stable coins and open banking are a challenge to the way most Canadians have always viewed money, how to store it and how to build a nest egg.
“Technology-driven disruptive forces continue to pose significant threats to financial institutions’ business models, in virtually all aspects of their activity and value chain,” says the report from the Office of the Superintendent of Financial Institutions (OSFI).
But don’t worry. OSFI says it is involved in international organizations, thinking about expanding its regulatory reach and will have more to say this year.
The underlying message of the authorities is: trust us, and if you’re not doing anything wrong, we won’t touch you.
Which brings us to inflation. At a record-setting 6.7 per cent in March, it erodes the value of savings substantively, federal authorities haven’t been able to wrestle it down - they may even have exacerbated it - and it touches everyone.
The Bank of Canada is keeping a close eye on just how much the public trusts the central bank to eventually get it under control. And the answer is, less and less. Recent surveys show consumers believe inflation will settle down over the long term, but they’re losing faith in the near future.
That’s fertile ground for the dangerous pitch coming from Conservative leadership candidate Pierre Poilievre. The front-runner is drawing huge crowds while urging supporters to reject the authority of the Bank of Canada and to “opt out” of inflation by investing in Bitcoin.
With all of that in mind, Bank of Canada governor Tiff Macklem is on the offensive these days, raising interest rates, talking about even more to come in June and the rest of the year, and explaining why Canadians should keep the faith.
But he won’t mention Poilievre’s name, let alone discuss his anti-institution arguments or their populist appeal. But while there’s a case to be made for ignoring Poilievre and hoping he goes away, it’s not a likely scenario, given the atmosphere of mistrust and uncertainty around the value of money.
Over the next few weeks, we will see many post-convoy recommendations from parliamentarians about how government can better manage financial security risks and cryptocurrencies.
We will hear from Macklem about the eventual stability of prices. We will get reassurances from Prime Minister Justin Trudeau and Finance Minister Chrystia Freeland about the underlying strength of our economy.
They’ll need to keep in mind that the public trust is earned, and in this atmosphere of disbelief, action will speak much louder than words.
Heather Scoffield is a national affairs columnist.