In brief
Since the start of the war with Ukraine, Russia’s cash circulation has risen sharply, spurred by mobile internet outages that curb card payments. The surge adds about 1.56 trillion roubles (around $20bn) to the monetary base, coinciding with rising VAT and a tightening fiscal environment. Companies— from pharmacies to food stalls—now favor cash to keep earnings off the books and sidestep higher taxes, prompting fears of a growing shadow economy. The central bank warns that cash detours limit tax collection, amplifying budget deficits amid a weak domestic economy.
Russians are flipping back to cash, driven by repeated shutdowns of mobile internet that hinder card payments, and by increased tax pressure that has pushed many businesses toward informal practices. Central Bank analysis shows that since the start of the year the country has put an extra 1.56 trillion roubles (about $20 bn) into circulation—the largest rise in any non‑pandemic year.
The rush to cash was sparked by drone attacks in Ukraine that prompted Moscow to cut mobile network access across large regions, leaving people unable to pay by card. “Having cash on hand gives you some sense of control and security,” said a Moscow resident who kept her identity anonymous.
The shift back to cash is choking the state’s tax revenue, at a time when Russia’s defense budget is expanding and its overall economy is slowing. Analysts point to a rise in VAT from 20 % to 22 %, lowered for small and medium enterprises, as a key factor driving businesses toward cash to stay below the VAT threshold.
Small shops, restaurants, pharmacies and beauty salons are increasingly advertising cash‑only deals to reduce tax burdens. Sberbank’s chief finance officer warned that a growing wave of cash‑in‑hand payment means less money is funneling back into the banking system.
In a May survey by the SME association Opora Russia, roughly 6 % of entrepreneurs reported using “grey” schemes, including skipping cash‑register receipts and paying wages in envelopes.
Shifting more money out of banks also hampers the state’s capacity to collect taxes. The central bank recorded 550 bn roubles withdrawn in the month of May alone, including 200 bn roubles from fixed‑term deposits.
The government’s attempt to squeeze out as much income as possible is being undermined by the apparatus of wartime security measures that blunt tax collection. Simultaneously, old‑world instincts to keep money under the mattress resurface, despite attractive bank deposit rates.
