Russia's Cash Surge Strains Wartime Economy
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- Russia's Central Bank added 1.56tn roubles (£14.8bn; $20bn) in cash to circulation since the start of 2026 — the biggest equivalent-period rise outside the Covid pandemic — with the spike coinciding with a wave of mobile internet shutdowns ordered to counter Ukrainian drone strikes.
- Russia's economy ministry cut its 2026 GDP growth forecast to 0.4% in May, putting the country on course for its weakest expansion since 2022, even as oil and gas revenues (about a quarter of state income) benefited from a price rise following the Iran war.
- The Kremlin hiked VAT from 20% to 22% in January and lowered the threshold at which small and medium-sized firms must pay it, prompting pharmacies, restaurants, beauty salons and corner shops to push customers toward cash to keep income off the books.
- Sberbank CFO Taras Skvortsov warned there are "very serious signs" more businesses are paying wages "in envelopes," noting that cash withdrawn from banks "is staying in people's hands" rather than cycling back through ATMs or cash collection.
- Opora Russia's May survey found about 6% of entrepreneurs had turned to "grey schemes" such as avoiding cash-register receipts to cope with the tax burden, while Russians withdrew 550bn roubles from bank accounts in May alone — including 200bn roubles from fixed-term deposits — despite Sberbank offering 10% on one-year deposits.
- Alexander Kolyandr of the Center for European Policy Analysis told the BBC that "one arm of the government is trying to squeeze as much money as possible out of people through higher taxes" while another, by shutting down mobile internet, "is undermining that strategy by making it harder to collect tax."
Why it matters: The Kremlin is squeezing itself from two sides: mobile internet shutdowns meant to counter Ukrainian drones are simultaneously blocking card payments and pushing businesses into the shadow economy, undermining the tax base even as VAT rose to 22% and the 2026 GDP forecast was cut to 0.4%. With 550bn roubles pulled from bank accounts in May alone, Moscow's fiscal foundation for sustaining the war is eroding from within.
