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Russians turn to cash, putting more strain on slowing wartime economy
Russians are increasingly relying on cash rather than card payments, as mobile internet blackouts caused by Ukrainian drone strikes disrupt digital transactions and rising taxes push more businesses towards off-the-books dealing. This matters because it is squeezing the Kremlin's ability to raise revenue through taxation just as Russia's wartime economy slows and its budget deficit widens, over four years into the war with Ukraine.
Central Bank figures show 1.56 trillion roubles (£14.8bn; $20bn) have been added to cash circulation since the start of the year, the largest such rise outside the Covid-19 pandemic. Businesses including pharmacies, restaurants and market stalls are steering customers towards cash to stay under VAT thresholds after the rate rose from 20% to 22% in January, while Sberbank's finance chief has warned of a growing trend of employers paying wages "in envelopes" to dodge payroll tax. Russia's economy ministry has cut its 2026 growth forecast to just 0.4%, its weakest since 2022, even as oil and gas revenues have had a temporary boost from higher prices following the Iran war.
In short
- Russians are hoarding cash amid drone-strike internet blackouts and tax rises
- Cash in circulation up 1.56tn roubles this year, a wartime high
- Trend hampers Kremlin tax collection as growth forecast falls to 0.4%
Steelman: both sides, in good faith
The strongest fair case each way — we don't pick a winner.
The case for
The shift towards cash represents a temporary adaptation to specific wartime disruptions and policy changes, not evidence of fundamental economic crisis. Once external pressures such as mobile internet blackouts ease or government tax policies moderate, this trend will likely reverse, demonstrating Russian economic resilience rather than dysfunction. Ordinary businesses and individuals are reasonably responding to difficult circumstances by finding workable solutions to continue operating effectively.
The case against
The widespread shift to cash reveals serious structural weaknesses in Russia's wartime economy, with businesses deliberately avoiding taxes when government needs maximum revenue. The unprecedented injection of cash into circulation, combined with slowing growth forecasts and a widening budget deficit, indicates an economy struggling under sustained wartime strain and unable to maintain basic fiscal stability needed for continued war effort and essential services.
Explained simply
Russia's economy is increasingly operating on cash rather than digital payments. This is happening because Ukrainian drone strikes have disrupted mobile internet in many areas, making card transactions unreliable, and because a recent rise in taxes has made businesses and workers prefer cash to avoid paying more to the government.
The Russian government depends on tax revenue to pay for the war in Ukraine and other spending, but cash transactions are much harder for authorities to track and collect taxes from than digital payments. As more money moves outside the official system, the government loses revenue at a time when it can least afford to.
Russia's economy has been slowing throughout the war, and its growth is now forecast at just 0.4% for 2026. The shift towards cash is making the Kremlin's financial problems worse by reducing the amount of money the state can collect through taxation.
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