Russians Hoard $20bn Cash as Wartime Economy Slows
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- Russia's central bank added 1.56tn roubles (£14.8bn; $20bn) in cash into circulation since the start of the year — the biggest rise for the equivalent period outside the Covid-19 pandemic, according to Central Bank figures analysed by the BBC.
- Ukrainian drone attacks have driven the Kremlin to shut down mobile internet across large swathes of Russia, leaving many unable to pay by card and prompting Russians to keep cash on hand for emergencies, one Moscow woman told the BBC.
- Russians withdrew 550bn roubles from bank accounts in May alone, including 200bn roubles from fixed-term deposits, even though Sberbank offers 10% interest on a one-year 100,000-rouble deposit.
- The Kremlin hiked VAT from 20% to 22% in January and lowered the SME threshold for paying it, pushing pharmacies, restaurants, beauty salons and corner shops to steer customers toward cash to understate turnover — about 6% of entrepreneurs reported turning to "grey schemes," per an Opora Russia survey.
- 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, while the broader economy slows despite oil and gas revenues benefiting from the Iran war-driven price rise.
- Taras Skvortsov, CFO of Sberbank, warned of "very serious signs" that more businesses are paying wages "in envelopes," with cash now staying in people's hands rather than cycling back through ATMs or terminals.
- Alexander Kolyandr of the Center for European Policy Analysis said one arm of government is squeezing money through higher taxes while another — the anti-drone internet shutdowns — is "undermining that strategy by making it harder to collect tax."
Why it matters: The cash shift directly undermines the Kremlin's ability to fund the war: it loses taxable revenue precisely after raising VAT to 22% to collect more. With GDP growth now forecast at 0.4% for 2026 and the central bank still battling double-digit inflation, Russia's own anti-drone security measures are accelerating fiscal erosion even as military spending demands more roubles.
