In brief
The Russian economy is feeling the pinch of war‑time cash behaviour, as mobile internet shut‑downs linked to drone attacks and rising tax burdens push consumers toward cash. 1.56 trillion roubles were added to circulation this year, the largest post‑Covid surge. Businesses are avoiding electronic payments to stay below VAT thresholds, creating a grey economy that sidesteps employers. With a tight budget deficit, the Kremlin faces a double‑edged sword: higher taxes to fund war while internet shut‑downs limit tax collection. The rise of cash could force more businesses into illegal employment and impact Moscow’s financial stability.
Russian citizens are reaching for their wallets more often than ever. The Central Bank’s latest data shows the amount of cash in circulation has surged by 1.56 trillion roubles (about 14.8 billion pounds) since January — the biggest rise in a normal year since the Covid‑19 pandemic.
The spike comes as the Kremlin keeps shutting down mobile internet. U.S.‑based advertisers claim these internet cuts are a direct response to Ukrainian drone attacks, leaving many unable to use card‑payment systems and forcing them to swathe cash.
One woman shared her experience in Moscow. “Having cash on hand gives you some sense of control and security,” she said. “In case the network goes down, I can still buy basics.”
The shift to cash is undermining the state’s efforts to raise revenue. While a 20‑to‑22 percent VAT hike in January, and a lower threshold for businesses, aimed to tighten revenue, cash skins around the banking system create a “shadow economy” that the government is now fighting to crack down on.
The Kremlin’s finance ministry has cut the 2026 GDP forecast to just 0.4 %, the weakest growth since 2022. Oil and gas – the sector that supplies a quarter of state revenue – has been buoyed by a price gradient but the wider economy is cooling.
Image: Graph of cash in circulation over recent years.
Businesses are adapting in strange ways. Pharmacies, restaurants and corner shops now prefer cash to minimise, and to stay under the VAT threshold. Some small owners, like a naïve-shop woman in Pskov, begged customers to pay cash to avoid the paper trail.
A 100,000‑rouble fixed‑term deposit now interests at 10 %. Yet Russians withdrew 550bn roubles from bank accounts in May, including 200bn roubles from such deposits, indicating people are moving money into cash hands.
As the government tries to shrink the shadow economy, the internet shutdowns keep making it hard for businesses to collect taxes. “We are not seeing cash return to the banking system,” said Taras Skvortsov, chief financial officer at Sberbank. “It is staying in people's hands.”
The Russian rebuff of digital payments is a sign that the war’s economic side has not yet cooled—it might instead lengthen the government’s fiscal squeeze and possibly push more sectors underground. The country’s finances are now doubly strained: higher tariffs to finance war, and a shrinking tax base that is hard to tap because people hoard money in cash.
