Russian citizens are increasingly relying on physical cash as mobile internet shutdowns disrupt digital payments and businesses seek to avoid higher taxes amid the ongoing war in Ukraine.

Key Points

• Russia has added 1.56 trillion roubles to circulation this year, marking the largest increase for this period outside of the Covid-19 pandemic.
• Frequent mobile internet shutdowns, implemented by the Kremlin to counter Ukrainian drone strikes, have rendered many digital card payment systems unusable.
• Small businesses are increasingly requesting cash payments to understate turnover and avoid a VAT increase from 20% to 22% implemented in January.
• Sberbank officials report that cash is failing to return to the banking system, with evidence suggesting a rise in "under the table" wage payments.
• A May survey by Opora Russia found that 6% of entrepreneurs have adopted "grey schemes" to manage the mounting tax burden.

Why it Matters

The shift toward a cash-based economy complicates the Kremlin's ability to collect tax revenue needed to fund the war effort and manage a widening budget deficit. This trend creates a policy paradox where security measures intended to protect the state are simultaneously undermining its fiscal stability and economic transparency.