Key facts
- Russians are increasingly using cash due to mobile internet disruptions and tax evasion efforts.
- Russia has added 1.56tn roubles in cash to circulation this year, a significant wartime surge.
- The Russian economy ministry has lowered its 2026 GDP growth forecast to 0.4%.
- VAT was increased to 22% in January, pushing some businesses towards informal cash transactions.
- Sberbank noted a worrying trend of businesses paying wages 'in envelopes' to avoid taxes.
Russians are increasingly turning to cash as a financial buffer amid uncertainty, with mobile internet shutdowns disrupting card payments and a growing number of businesses seeking to evade taxes. This trend has led to a significant increase in cash in circulation, adding strain to Russia's wartime economy.
According to Central Bank figures analyzed by the BBC, Russia has added 1.56tn roubles (£14.8bn; $20bn) in cash into circulation since the start of the year. This surge follows earlier wartime increases in cash withdrawals, particularly after President Vladimir Putin's partial mobilization announcement in September 2022 and during the Wagner mercenary group's mutiny in June 2023.
The current spike is partly attributed to repeated mobile internet shutdowns across the country, implemented to counter Ukrainian drone attacks. These shutdowns leave many unable to use card payments, prompting individuals to keep cash on hand for security and to ensure they can purchase necessities.
This shift to cash complicates the government's efforts to collect taxes, especially as it faces a widening budget deficit to fund the war in Ukraine. The Russian economy is also showing signs of slowing, with the economy ministry cutting its 2026 GDP growth forecast to 0.4%. To boost revenues, the government increased VAT from 20% to 22% in January and lowered the threshold for small and medium-sized businesses, pushing many towards informal practices.
Businesses, including pharmacies, restaurants, and shops, are increasingly encouraging cash payments to keep income off the books and stay below the VAT threshold. Some market traders report that it is no longer profitable to stay open due to these pressures. Taras Skvortsov, CFO of Sberbank, warned of a worrying trend where more businesses are paying wages 'in envelopes' and cash is not returning to the banking system.
A survey by Opora Russia indicated that about 6% of entrepreneurs have resorted to 'grey schemes,' such as avoiding cash-register receipts, to cope with the tax burden. This includes understating turnover to remain below the VAT threshold and avoiding payroll taxes on cash wages.
Analysts note a conflict between the government's efforts to increase tax revenue and the impact of internet shutdowns that hinder tax collection. The traditional Soviet-era practice of holding cash 'under the mattress' is resurfacing, despite high interest rates on bank deposits aimed at combating inflation. In May, Russians withdrew 550bn roubles from bank accounts, including 200bn roubles from fixed-term deposits.