Canada: An off-shore haven for cash?

auroraDespite speculation over the past year that Canada may very well be on the road to joining Japan and Europe in the negative interest rate policy (NIRP) club so far the Bank of Canada (BOC) has stood its ground maintaining the BOC rate at 0.50%. However, starting on December 22, for the broker dealer clients of BMO Nesbitt Burns, it will be as if the Canadian bank has cut its deposit rate on some currencies, to match the deposit rate of Switzerland.


palm-treesIn an internal letter sent November 21, 2016 from management, the bank explains that its current policy with respect to cash balances of foreign currencies held in client accounts – excluding U.S. dollars – has been that it “does not pay or charge clients interest on these balances.” As a result, the bank writes, clients have traditionally tended not to hold non-U.S. dollar foreign currencies in a BMO Nesbitt Burns account for any extended period. However, the notice continues, “given the current global interest rate environment (many negative), which has extended much longer than anticipated, we have seen an increase in foreign currency cash reserves across accounts; indicating clients are, in fact, moving these funds into their BMO Nesbitt Burns account in order to avoid negative interest charges on cash holdings in other accounts” they maintain with foreign banks domiciled in (NIRP) countries.

The internal letter from BMO Nesbitt Burns goes on to state that: “Effective December 22, 2016, we will begin charging clients a market-rate negative interest charge of 75 basis points on cash balances of all foreign currencies held in their account(s), excluding U.S. dollars. Interest is calculated on the average daily balance during the interest period. The first negative interest charge will cover the period of December 22, 2016 to January 21, 2017, and will be charged to all applicable client accounts on January 23, 2017.”

Welcome to the age of connected monetary vessels, where globally fungible money allows savers to bypass their own domestic “financial repression” and negative interest rates, by shifting their funds to an offshore bank account in Canada.  Sure, it’s only BMO Nesbitt Burns right now but the major Canadian financial institutions run in a pack.  There will soon be others.

Who would ever have thought 10 years ago that suddenly Canada would become a haven for off-shore cash like the British Virgin Islands and the Cayman Island, not as a tax haven, but rather as a place to hide from your country’s negative interest rates. But then again 10 years ago only the delusional would even consider the concept of negative interest rates, the concept of actually paying someone for the pleasure of ‘holding your money’. Are you kidding me?