Sadly, he'd either have to take on currency risk (if his assets are in Euros and his liabilities are in Loonies, and the Euro drops relative to the Loonie, he's lost money that wasn't his). Or he'll have to hedge -- but there probably isn't an arbitrage opportunity there.
Tarsnap's unearned revenue is in USD, not CAD -- but aside from that, you're exactly right. I can't earn more interest without accepting currency exchange risk.
And he can't put it into CDs because of liquidity risk.
PayPal's first business plan was to make money on the float. That didn't work, so they started charging (ever higher) fees. In the history of the world, I don't think anyone's ever made their money on the float.
A more useful comparison would be to Jeff Bezos: Even disregarding unearned income, tarsnap produces roughly 1.5 months of float due to AWS billing a credit card at the end of each month (0.5 months after usage, on average) which has a billing period ending 3 weeks later (0.75 months) and which has a long enough grace period that I can wait another week (0.25 months) before paying off the credit card bill.
This "negative working capital" model is one of the reasons Amazon could grow so quickly in the early years -- and makes it very unlikely that I will ever need to raise capital to fund tarsnap's growth.
