Russians Turn to Cash, Straining a Slowing Wartime Economy
Russians turn to cash putting more pressure on the war-torn economy as uncertainty mounts. With the war in Ukraine entering its fourth year, the shift toward physical currency has become a coping mechanism for citizens and businesses alike. The trend is exacerbated by disruptions in digital payment systems and a growing desire to avoid taxes, highlighting the deepening economic challenges the country faces.
Escalating Cash Reliance Amid Wartime Disruptions
According to Central Bank data analyzed by the BBC, cash circulation in Russia has surged by 1.56 trillion roubles (£14.8bn; $20bn) this year—the largest annual increase since the pandemic began. This rise follows a wave of Ukrainian drone strikes that forced the Kremlin to impose mobile internet blackouts in key regions, leaving many unable to access digital payment methods. As a result, citizens are increasingly turning to cash to ensure they can make essential purchases during emergencies.
“Carrying cash provides a tangible sense of security and control,” said a Moscow woman who requested anonymity. “If an emergency hits the city, I know I can still buy essentials even if the mobile network fails.”
The trend of Russians turning to cash putting has intensified in response to critical moments in the war, such as Putin’s partial mobilization in September 2022 and the Wagner group unrest in June 2023. These events have heightened public anxiety, prompting a widespread move toward cash transactions. The shift is not only a personal response to uncertainty but also a structural challenge for the government, which now struggles to collect taxes from a shrinking digital economy.
Impact on Tax Collection and the Shadow Economy
Russia’s reliance on cash is compounding the government’s difficulties in tax collection, especially as the budget deficit continues to widen. The ministry of economic development recently revised its 2026 GDP growth forecast to 0.4%, the weakest projection since 2022. To counter this, the Kremlin raised VAT to 22% in January and lowered the tax threshold for small businesses, pushing many struggling enterprises to the edge. As a result, they are adopting cash-based operations to evade reporting requirements and retain more profit.
“Stalls at our market are closing one by one because it’s no longer profitable to stay open,” noted a woman managing a small clothing store in Pskov. “Most who remain ask for cash payments to keep money off the books.”
Experts warn that this growing reliance on cash is deepening the shadow economy, making it harder for the government to track and regulate financial activity. Taras Skvortsov, Sberbank’s chief financial officer, pointed out that more businesses are now paying wages “in envelopes” to avoid formal records. This practice, combined with the decline in digital transactions, means cash is staying in people’s hands rather than flowing back into the banking system through collections or ATMs.
Meanwhile, the oil and gas sector, which accounts for roughly a quarter of state revenue, has seen some relief from rising oil prices. However, the broader economy remains sluggish, with inflation and sanctions eroding consumer confidence and business growth. The trend of Russians turning to cash putting reflects a broader loss of trust in the banking system, as many opt to store money at home rather than in bank accounts, despite high interest rates on deposits.
As the war drags on, the economic strain on Russians is expected to persist. With cash transactions becoming more common, the government faces mounting pressure to address the root causes of this shift. Whether through policy adjustments or improved digital infrastructure, finding solutions to balance economic stability and public trust will be crucial in mitigating the long-term effects of this cash reliance.
