Russians turn to cash, putting more strain on slowing wartime economy

What Happened

Russia added 1.56 trillion roubles (£14.8bn; $20bn) in cash to circulation since the start of 2025, the largest rise for the equivalent period outside the COVID-19 pandemic, according to Central Bank figures analysed by the BBC. The surge has been driven by repeated mobile internet shutdowns ordered by the Kremlin to counter Ukrainian drone strikes, which disrupt card payments and prompt Russians to hold cash as a buffer against uncertainty. Concurrently, a VAT increase from 20% to 22% in January 2025, combined with a lower threshold for small and medium-sized businesses to pay it, has pushed firms to encourage cash payments to underreport turnover and avoid tax, further fueling the cash shift.

Key Actors

Why It Matters

The shift to cash undermines tax collection just as Russia faces a widening budget deficit and a slowing economy — the economy ministry cut its 2026 GDP growth forecast to 0.4% — straining the state's ability to fund the war in Ukraine. Evasion of the higher VAT and payroll taxes by businesses worsens the fiscal gap, potentially forcing further austerity or undermining military spending.

Watch For

Monitor for Central Bank data on cash circulation and deposit flows in coming months, tax revenue reports, and any Kremlin initiatives to enforce tax compliance or additional fiscal measures. Watch for signs of mobile internet shutdowns during further Ukrainian drone strikes and their impact on card payment reliability and economic activity.