Russia has added 1.56 trillion rubles ($20bn) in cash into circulation since the start of the year, the biggest increase for the period outside the Covid pandemic, central bank data shows. The surge is driven by mobile internet shutdowns that disrupt card payments and a growing shadow economy as businesses seek to evade higher taxes.
Ukrainian drone attacks have repeatedly forced the Kremlin to shut down mobile internet across large areas, leaving many unable to pay by card. A Moscow resident told the BBC: “Having cash on hand gives you some sense of control and security. If there’s an emergency, I’ll still be able to buy basic necessities even if the network goes down.”
Cash withdrawals spiked earlier after President Vladimir Putin announced partial mobilization in September 2022 and during the Wagner mutiny in June 2023. The current trend is making it harder for the state to collect taxes as it faces a widening budget deficit to fund the war.
In January, VAT was hiked from 20% to 22%, and the threshold for small businesses was lowered. Pharmacies, restaurants, and shops are increasingly steering customers toward cash to keep income off the books. A clothing shop owner in Pskov said: “Stalls at our market are closing one after another because it’s no longer profitable. Most ask customers to pay in cash so less goes through the till.”
Sberbank CFO Taras Skvortsov warned of “very serious signs” that wages are being paid in envelopes. “Cash is not returning to the banking system,” he said. A May survey by Opora Russia found 6% of entrepreneurs had turned to “grey schemes” to cope with the tax burden.
The economy ministry cut its GDP growth forecast for 2026 to 0.4%, the weakest since 2022. While higher oil prices have boosted revenues, the broader economy is slowing. Analyst Alexander Kolyandr noted: “One arm of the government is squeezing money through higher taxes, but another undermines that by making tax collection harder with internet shutdowns.”
The Soviet-era habit of keeping money “under the mattress” is returning despite high deposit rates. In May, Russians withdrew 550 billion rubles from bank accounts, including 200 billion from fixed-term deposits.
Source: www.bbc.co.uk