In brief
Roughly 1.56 trillion roubles of cash entered circulation this year as Russian consumers reacted to mobile‑internet shutdowns that curbed card payments. Against a backdrop of tightened VAT thresholds and a widening budget deficit, many small businesses now prefer cash to keep taxes off‑book, fueling a growing grey economy. The move threatens government revenue and reflects how the war economy is morphing into a cash‑based market. High bank‑deposit rates have not deterred cash withdrawals, as millions sprint to ATMs before outages. The Kremlin’s dual strategy—heighten taxes yet curb mobile access—has backfired, turning ordinary citizens into cash‑residents at the expense of transparency.
Russians are putting more money into cash than ever before, a trend that has erupted since the war with Ukraine began. According to Central Bank data, 1.56 trillion roubles – the largest cash surge in any non‑pandemic year – have slipped into circulation this year alone.
The spike is driven by a series of mobile‑internet shutdowns aimed at preventing Ukrainian drone attacks. When network services fail, card payments grind to a halt, forcing shoppers, businesses and consumers to turn to cash to keep basic goods and services flowing.
“Having cash on hand gives you some sense of control and security,” said an anonymous Moscow resident. “If there’s an emergency in the city, I know I’ll still be able to buy basic necessities, even if the mobile network goes down.”
Meanwhile, the Kremlin is tightening tax nets. The VAT rate was raised from 20% to 22% last January and the registration threshold for small and medium enterprises was lowered. Surviving firms now push customers to pay in cash to evade the new tax burden.
Financial services head Taras Skvortsov of Sberbank warned that businesses are increasingly paying wages “in envelopes” and “under the table.” His comments appear in state news agency Interfax, the same agency that reported that 550 billion roubles were withdrawn from bank accounts in May, largely from fixed‑term deposits.
Even as deposit rates hit a decade‑high of 10%, the atmosphere grew increasingly cash‑centric. The central bank continues to fight high inflation and a widening budget deficit, yet the crackdown on the shadow economy appears mired, as Russia faces a fiscal squeeze that overlooks pull‑back into the black market.
Small retailers in Pskov, a western city, cite closing shop after shop as “unprofitable.” They now try to persuade customers to pay cash, keeping money out of the banking system. The covert shift threatens tax revenue and signals a crisis under defence spending pressure.
The backlash hits two fronts: on the one hand, the government curbs outflows; on the other, the Internet shutdowns jeopardise the tax collection plan. As mobile networks become unreliable, ordinary Russians adapt by keeping money literally under their mattresses, a Soviet‑era instinct that now tests the resilience of the Russian economy.
