Justin Trudeau's Crackdown Will Make Bitcoin and Cash More Popular
There’s no freedom if the state can separate us from our money.
By invoking emergency powers and freezing the assets of Freedom Convoy protesters, Canadian Prime Minister Justin Trudeau makes clear that civil liberties protections mean little when the government can deny you access to your money. That financial weapon has been used in the past not just in autocracies but also in democracies against controversial (to some) businesses and organizations. But by targeting political protesters in a supposedly free country, Canada's government reminds us of the importance of keeping at least some resources beyond the reach of the state.
"This is about following the money," Canada's Deputy Prime Minister Chrystia Freeland threatened on February 14. "This is about stopping the financing of these illegal blockades. We are today serving notice: if your truck is being used in these protests, your corporate accounts will be frozen. The insurance on your vehicle will be suspended." The Canadian government promptly seized assets.
Justice Minister David Lametti added that donors to funds supporting the Freedom Convoy are also targets. The government subsequently backpedaled, but donors have been doxxed and threatened (Americans are likely beyond the reach of all but finger-wagging). Under the Emergencies Act, the Canadian government inflicts financial punishment on its critics without due process.
"It's a Western version of China's social credit system that does not altogether prohibit political dissent but makes it so costly that it becomes impractical to the ordinary citizen," David Sacks, former PayPal COO, writes of Canada's financial measures against protesters. Earlier, Sacks warned that we should expect a wave of firms denying services to those who don't share their ideology. "What I could not have anticipated is that it would occur first in our mild-mannered neighbor to the north, with the Canadian government itself directing the reprisals," he marveled.
Actually, this isn't the first example of governments conscripting private companies against targets that otherwise enjoy legal protection. Credit card companies have been pressured into denying services to suspected sex workers, and the U.S. federal government's Operation Choke Point cut off gun dealers, payday lenders, and sex-oriented businesses from banking without the muss or fuss of proving any illegality.
"The clandestine Operation Choke Point had more in common with a purge of ideological foes than a regulatory enforcement action," Frank Keating, former governor of Oklahoma and previously an FBI agent and U.S. Attorney, wrote in 2018. "It targeted wide swaths of businesses with little regard for whether legal businesses were swept up and harmed."
Since then, New York officials strong-armed insurance companies and banks into shunning the NRA. Cannabis businesses have difficulty opening bank accounts over regulatory fears. And independent ATMs are becoming scarce because the government hates that they dispense cash to just anybody. "A bank that does business with unscrupulous ATM owners could face the wrath of regulators for violating anti-money-laundering rules," The Wall Street Journal reported this week.
But targeting remarkably peaceful political protesters because they annoy officials in an ostensibly liberal democracy is a new step in the direction of a financial police state. And a financial police state is an effective means for officialdom to muzzle opposition without breaking a sweat.
"Without economic freedom you cannot have political freedom," writes economist John H. Cochrane of the Hoover Institution about the fiasco in Canada. "If the government can monitor your transactions, freeze your assets, 'sanction' you, or freeze your ability to transact, to buy or sell anything, it can quickly silence you, stop your political participation, undermine political movements or even aspiring individual politicians."
Understandably, financial assets that aren't so subject to government whim have become more attractive. Many Canadians reportedly withdrew cash from banks, either because they feared their accounts could be frozen, or were frightened by the prospect. Cash is anonymous and its use is immune to state intervention (so long as the government doesn't emulate India by turning bills into toilet paper).
In addition, even former skeptics are now open to crypto such as bitcoin as a haven for assets.
"I still can't believe that this is the protest that would prove every Bitcoin crank a prophet," writes David Heinemeier Hansson, a partner in the tech company Basecamp. "And for me to have to slice a piece of humble pie, and admit that I was wrong on crypto's fundamental necessity in Western democracies."
But "Bitcoin is far from universally accepted at stores," Andrea O'Sullivan warns at Reason. "The longer-term solution is to encourage more businesses to accept cryptocurrency so there is no need to bridge into government-controlled money at all."
That may well happen. Seeing the writing on the wall, governments promote central bank digital currencies (CBDC) as alternatives to both cash and crypto. But they openly salivate over being able to monitor and restrict its use. "The Bank of England has called on ministers to decide whether a central bank digital currency should be 'programmable', ultimately giving the issuer control over how it is spent by the recipient," The Telegraph reported last year.
Officials argue that controllable CBDCs could cut down on tax evasion and crime. But Canadian officials freezing protesters' bank accounts emphasizes that there are worse things than underground economies. Independent crypto alongside cash could help people retain their financial freedom.
"Perhaps we want to have government able to deny financial services to criminal organizations (but think carefully about this before you agree)," economist Arnold Kling writes. "On the other hand, we do not want government to be able to deny financial services to people who hold dissenting views. The problem is that nowadays, especially with COVID and with cancel culture, we have become accustomed to criminalizing the expression of dissenting views."
Sacks wants to prohibit financial institutions from denying services for political reasons. But that would be enforced by the same regulators who lean on banks and insurance companies to shun sex workers, gun dealers, and payday lenders. They're supposed to transform into neutral arbiters because the law says so. In the real world, regulators will more likely use expanded power to hurt the enemies of whoever is currently in office in the name of curbing some imaginary threat to public order.
A better solution is preserving cash and continuing to develop crypto that protects privacy and bypasses intermediaries. Even the International Monetary Fund concedes that people seek "a defense against attempts by an all-encroaching 'Big Brother' surveillance state to rob people of their anonymity by forcing them to leave an electronic payment trail." But it's not just surveillance. The Canadian government's excesses remind us that there's no freedom if the state can separate us from our money.