Canada Reveals the “End Game” for Money
For most of human history, “money” was a physical commodity. Ancient peoples traded gold, silver, beads – even giant stone disks.
When money was scarce, people bartered. For instance, at the end of World War II, cash was scarce in occupied Germany. Ordinary Germans adapted by exchanging cigarettes for food and other necessities.
Money was also decentralized. If we lived in the Yap Islands centuries ago and used stone disks for money, there was no central stone disk authority to keep tabs on it. Your stone disks were yours, and mine were mine.
Further, money was non-custodial. You kept your money in a safe place; buried in the ground or hidden in a cave, for instance. You didn’t turn it over to anyone else for safekeeping.
All that began to change a few thousand years ago. Ancient Greece, and later ancient Rome, both had sophisticated banking systems that helped finance trade. But ordinary people who had money they wanted to protect might deposit it in a bank, where it would be held in a secure room and not lent out without their permission.
A thousand years later, during the Middle Ages, if you had money – generally, silver or gold – you wanted to safeguard, you could take it to a secured warehouse to store it. You gave the warehouse-keeper a sealed bag of coins and received a receipt for it. The warehouse-keeper didn’t lend out your valuables; they only kept them secure, in return for a fee. As long as the warehouse-keeper didn’t run off with your valuables, or have them stolen, your wealth was secure.
Not all depositors, however, insisted on receiving the same bag of valuables back from the warehouse-keeper. They were satisfied to receive back equivalent value. Depositors could now use the receipts warehouse-keepers issued as a medium of exchange.
Warehouse-keepers understood that not every receipt would likely be redeemed simultaneously. So, they began lending out some fractional reserve of their valuables stored in exchange for interest payments. In this manner, warehouse keepers and goldsmiths evolved into interest-paying fractional reserve banks.
The biggest risk of fractional reserve banking, of course, is the “bank run.” If a bank lends out too much of the funds on reserve, and if everyone wants their money at once, the bank won’t be able to pay everyone back.
Deposit insurance schemes evolved in the 20th century to shield bank customers from this reality. As a result, during the lifetime of anyone alive today, bank customers have treated their deposits as if they were 100% backed by actual reserves. The seemingly unlimited ability of central banks to conjure money out of thin air tended to lend credence to this assumption.
In the meantime, the decentralized nature of money also changed. Warehouse keepers and banks, of course, had to keep tabs on who owned the deposits that had been made with them. But decentralization largely ended when governments started regulating banks. Laws like the US Bank Secrecy Act were enacted requiring banks to keep a record of every transaction and notify a central authority when depositors made cash transactions over a certain limit. Not to mention the USA PATRIOT Act and similar laws which require financial institutions to adhere with strict “know your customer” rules.
This background came to mind recently when Canadian Prime Minister Justin Trudeau announced that he would for the first time invoke his country’s Emergencies Act to help quell protests by truck drivers against the country’s COVID restrictions. Among other powers granted the government under this act is the authority to order financial institutions to freeze the accounts of specified individuals and companies. Accordingly, financial institutions froze over 200 individual financial accounts and 253 cryptocurrency addresses.
While Mr. Trudeau might not admit it, and might not even realize it, his actions give us a glimpse of what could be the “end game” for money. And it’s not a pleasant sight.
This realization crystalized after reading a Twitter post from someone with the twitter handle @punk6529. While it’s worth reading the entire post, its conclusion is the most important to understand:
Without the freedom to transact, you have no other constitutional rights.
The reason, of course, is that it requires money to exercise constitutional rights. But unless money is largely decentralized and non-custodial, a government can control its citizens to a degree not even dreamed of by the likes of Adolf Hitler or Josef Stalin.
By freezing the assets of protesting truckers and their financial supporters, Trudeau was interfering with their freedom to transact. In so doing, he was in effect suspending the Canadian Charter of Rights, which gives Canadians the right to freedom of speech and to peaceably assemble. In effect, if you participated in what became known as the Freedom Convoy, or donated money to it, you forfeited the right to function in modern society.
It’s true that there was some bad behavior, along with a small number of Nazi flags wielded by some of the protesting truckers. Trudeau called them a “small fringe minority” who held “unacceptable views” that “do not represent the views of Canadians.” But the vast majority, according to firsthand accounts, were well-behaved.
Certainly, we see no legitimate reason why the Canadian government needed to declare an emergency and freeze financial accounts and cryptocurrency wallets. Instead, it could have simply arrested protestors who were destroying property or engaged in other illegal activity and towed away the trucks blocking a key US-Canadian border.
Trudeau’s actions were possible only because your money no longer exists in a physical form that you can control and exchange for merchandise and services. Instead, it’s maintained in a centralized and highly regulated form that you can use only for permissible purposes as defined by governmental edict.
In effect, Canada’s Emergencies Act is a devastating form of civil forfeiture, in which Big Brother seizes your assets with no judicial review or other recourse. And it’s enforceable only because money today largely exists in a centralized and custodial form.
We received numerous questions and comments from readers and clients over the last few weeks as the crisis unfolded. They correctly see Trudeau’s action as crossing a threshold many of them have long feared. And they’ve asked us for our suggestions on how to protect themselves.
The answer is to accumulate non-custodial, decentralized forms of money. That means physical cash and precious metals. Why keep your money in a bank where it’s merely an IOU subject to confiscation at the whim of an elected official? Not to mention being subject to “bail-ins” if the bank becomes insolvent.
And while Trudeau froze domestic accounts, he wasn’t able to use his emergency powers to freeze assets outside the country. That means as we’ve long advocated, keeping a generous portion of your wealth outside your own country is an important precaution.
Naturally, we suggest making these preparations as privately as possible, keeping in mind the draconian penalties that exist in many countries for trying to preserve your financial privacy. But there’s no time for delay. Thanks to Justin Trudeau, we’ve now glimpsed the future of money.
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