Russians turn to cash as internet shutdowns and tax pressure strain wartime economy

Russians are increasingly turning to cash as mobile internet shutdowns disrupt card payments and businesses seek ways to reduce their tax burden under mounting financial pressure more than four years into the war with Ukraine. Central Bank figures analysed by the BBC show that Russia has added 1.56tn roubles, or about $20bn, in cash into circulation since the start of the year. That is the biggest rise for the equivalent period in any year outside the Covid-19 pandemic.

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The surge comes amid a wave of Ukrainian drone attacks that have repeatedly prompted the Kremlin to shut down mobile internet across large parts of the country. The government says the shutdowns are intended to counter the drone strikes, but they have left many people unable to pay by card. One woman in Moscow said having cash on hand gave her a sense of control and security, adding that she wanted to be able to buy basic necessities even if the mobile network went down.

The latest increase follows earlier wartime spikes in cash withdrawals, including after President Vladimir Putin announced a partial mobilisation in September 2022 and during the Wagner mercenary group's brief mutiny in June 2023. This time, the shift is also making it harder for the state to collect tax at a moment when the budget deficit is widening and the government needs more revenue to support the war effort. The trend is significant because it reflects both public anxiety and practical disruption in everyday payments.

The pressure on the economy is building even as Russia's oil and gas sector, which accounts for about a quarter of state revenues, has benefited from a recent rise in oil prices following the Iran war. In May, the economy ministry cut its GDP growth forecast for 2026 to 0.4%, which would make it the country's weakest growth since 2022. At the same time, the Kremlin raised value-added tax from 20% to 22% in January and lowered the threshold at which small and medium-sized businesses must pay it.

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Those tax changes have added strain to firms already facing slower growth and tighter margins. Pharmacies, restaurants, beauty salons and corner shops are increasingly steering customers towards cash so they can keep more income off the books, according to the report. That behaviour may help individual businesses cope in the short term, but it also reduces transparency in the wider economy and complicates the state's efforts to raise funds.

What remains unclear is how long the mobile internet shutdowns will continue and whether the cash shift will deepen if drone attacks and payment disruptions persist. It is also not yet clear how much additional tax revenue the government may lose if more businesses move transactions out of the formal system. For now, the trend points to a wartime economy under pressure from security measures, weaker growth and rising fiscal demands.

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