Russians turn to cash putting more strain on slowing wartime economy

Key Points:

• Cash circulation in Russia has surged by 1.56 trillion roubles (£14.8bn; $20bn) since early 2024, marking the largest increase outside the Covid-19 pandemic period, driven by mobile internet shutdowns amid Ukrainian drone attacks disrupting card payments.
• The Kremlin's mobile internet blackouts aim to counter drone strikes but have inadvertently pushed more Russians and businesses to rely on cash, complicating tax collection amid a widening budget deficit and economic slowdown.
• The Russian government raised VAT from 20% to 22% and lowered the tax threshold for small and medium businesses, prompting many firms to encourage cash payments to avoid taxes and operate off the books.
• Economic pressures have led to increased use of "grey schemes," including under-the-table wage payments and avoidance of cash-register receipts, with about 6% of entrepreneurs adopting such practices to cope with the tax burden.
• Despite high bank deposit returns, many Russians prefer holding cash for security and control, reflecting a revival of Soviet-era habits amid ongoing war-related financial uncertainties.