Statistics Canada Resuscitates Dead Money

Interestingly, the day after the new Bank of Canada Governor gave a speech distancing himself from his predecessor’s “dead money” comments, Statistics Canada released a significant downward revision to the usual measure of corporate cash accumulation.

The cash holdings of private non-financial corporations reached $594 billion in the fourth quarter of 2012, so I was curious to see if they would crack $600 billion in the first quarter of this year. To my surprise, today’s National Balance Sheet Accounts indicate a corporate cash hoard of “only” $535 billion in the fourth quarter and $544 billion in the first quarter.

I phoned Statistics Canada’s Income and Expenditure Accounts Division, which confirmed that it had revised “Total currency and deposits”. Specifically, it stopped including covered bonds in this category.

It is a judgement call which near-cash instruments to count as cash. Statistics Canada’s decision is consistent with Basel III standards, which do not consider covered bonds to be tier-one capital (although Danish lobbyists seem to have won an exception).

My first conclusion is that this redefinition does not fundamentally change the story of Canadian corporate cash hoarding. The revised numbers still show a sharp rise in corporate cash holdings over time. Even using the narrower definition of “cash,” Canada’s private non-financial corporations are still sitting on more than half a trillion dollars of it.

My second conclusion is that corporate Canada has recently poured an awful lot of money into covered bonds. The difference between the old and revised figures was $59 billion for the fourth quarter of 2012. By comparison, it was only $13 billion for the first quarter of 2012.