This is right, but the canonical/non-canonical distinction is all or nothing. Bash echos most characters, but it needs to treat a handful, like tab, up, and down, specially so it (or readline probably) puts the terminal in non-buffered mode and ends up echoing the normal characters. I read the GP as suggesting that there should be a way for bash to indicate which characters were "normal" and should be buffered and echoed and which it wants to see immediately. It's an interesting idea, but of course such a mechanism would require coordination between the kernel's terminal interface, bash/readline, and ssh in order to get a marginal improvement in network efficiency.

Ah, providing it at the terminal level does make more sense (that was probably obvious to anyone with any familiarity with the basics of Unix terminals, sorry), and now that I hear it I'm not surprised it already exists :)

In that case, I guess this functionality would be implemented similarly to the example you mentioned of stopping the client from sending every keystroke at a password prompt, right? It seems like it would be strange for ssh to send the 'toggle echo' signals to the client, but not the 'toggle canonical mode' signals (which the client could also handle in a useful way).