NextFin News - Russians are pulling cash out of banks at a pace not seen outside the pandemic, even as the central bank pays them double-digit interest to leave it in. By late August, households and businesses had added 2.1 trillion roubles — about $25.3 billion — to their cash holdings since January, the largest year-to-date increase since the war began, according to central-bank data. The rush is being driven by a new and more durable mix of motives: Ukrainian drone strikes that shut down mobile internet and disable card payments, a tax squeeze pushing small businesses into the shadows, and a spreading fear that savings parked in banks could one day be tapped to fund the war.
The stakes go well beyond personal precaution. Every rouble that stays under a mattress is a rouble the state cannot tax, cannot intermediate through banks, and cannot easily channel into the government bonds financing the war in Ukraine. What began as episodic panic — cash spiked after the September 2022 partial mobilisation and again during the June 2023 Wagner mutiny — is hardening into something structural: a quiet renegotiation of the social contract between Russian savers and their state.
The Numbers: A Record Flight Into Banknotes
The scale of the shift is unusual. Earlier in 2026, central-bank figures showed Russia had added roughly 1.56 trillion roubles — about $20 billion — in cash into circulation, the largest increase for the equivalent period in any year outside the Covid-19 pandemic. By late August that cumulative total had climbed to 2.1 trillion roubles, already surpassing the 1.8 trillion roubles added across the first eight months of 2023, the previous wartime peak. Sberbank, the country's largest lender, projects cash in circulation could rise by 3.8 trillion roubles — roughly $45.8 billion — over the full year, which would make 2026 the biggest annual increase on record.
The withdrawals are not just idle balances. In May alone, Russians pulled 550 billion roubles out of bank accounts, including 200 billion roubles from fixed-term deposits — the very instruments meant to be held to maturity. Another tally of physical cash removed from the banking system put the May outflow at a record 381.2 billion roubles, the largest May withdrawal since the central bank began publishing the series in 1995. From February through July, 2.6 trillion roubles left banks altogether.
What makes the behaviour striking is the price being forgone. The central bank's key rate stands at 14% after a 25-basis-point cut in late July, and a 100,000-rouble one-year fixed-term deposit at Sberbank still pays 10% interest. With annual inflation running around 6–7%, depositors are earning a positive real return of roughly 3–4 percentage points. In normal times, that is a powerful incentive to keep money in the bank. That Russians are leaving it on the table signals the premium they are placing on liquidity and control has overtaken the premium on yield.
Why Cash Now: Three Drivers, One Feedback Loop
The first driver is operational. Waves of Ukrainian drone attacks have prompted the Kremlin to shut down mobile internet across large regions as an air-defence measure. When the network goes down, card terminals and mobile banking stop working. One Moscow resident, speaking on condition of anonymity, put it plainly:
Having cash on hand gives you some sense of control and security. If there's an emergency in the city, I know I'll still be able to buy basic necessities, even if the mobile network goes down.
During heightened security around the May Victory Day celebrations, observers reported people moving from ATM to ATM looking for machines that still had banknotes.
The second driver is fiscal. In January, the Kremlin raised value-added tax from 20% to 22% and lowered the threshold at which small and medium-sized businesses must register for it. With the economy ministry cutting its 2026 GDP growth forecast to 0.4% — the weakest expansion since 2022 — and margins already compressed by labour shortages and wartime disruption, cash has become a survival tool. Pharmacies, restaurants, beauty salons and corner shops are steering customers toward cash so less turnover passes through the till, keeping reported revenue below the VAT threshold. A May survey by Opora Russia, the country's largest SME association, found about 6% of entrepreneurs had turned to "grey schemes" to cope, including avoiding cash-register receipts.
The third driver is political. Despite official assurances that personal savings will not be touched to fund the military, the question has entered public debate. In June, Communist Party leader Gennady Zyuganov suggested that the 67 trillion roubles Russians hold in bank deposits were merely "enriching bankers" and should instead be directed toward manufacturing or the war effort. The comment alarmed savers precisely because it framed deposits not as private property but as a national resource the state could redeploy.
These three drivers reinforce one another. Internet outages teach people that digital money is fragile; tax pressure teaches businesses that digital money is visible; political rhetoric teaches households that visible money is a target. Cash solves all three problems at once.
The State's Dilemma: A Shrinking Tax Base Mid-War
The irony for the Kremlin is timing. The cash shift is making it harder to collect tax just as the state faces a widening budget deficit and needs every rouble to fund the war. Oil and gas receipts — which account for about a quarter of state revenues — have benefited from higher crude prices following the Iran war, but the broader economy is slowing, and the non-oil tax base is precisely where the leakage is occurring. The economy grew just 0.6% in the first half of 2026, per Rosstat's preliminary estimate — after contracting 0.2% in the first quarter — underscoring how narrow the revenue base has become.
Taras Skvortsov, chief financial officer of Sberbank, warned last month that there were "very serious signs" that more businesses were paying wages "in envelopes" — off the books. His assessment of where the money has gone was blunt:
This is a very worrying moment. We are not seeing cash return to the banking system through cash collection, ATMs or self-service terminals. It is staying in people's hands.
The warning matters because banks are the transmission belt for war finance, and the strain is already visible in the government-bond market. The Finance Ministry suspended auctions of OFZ federal bonds in July after prices fell and yields rose; banks holding the securities recorded about 200 billion roubles in mark-to-market losses. The original 2026 budget plan had called for 4.4 trillion roubles — roughly $55 billion — in domestic borrowing, but the federal budget instead recorded a deficit of 5.7 trillion roubles, about $71.8 billion, in the first half of the year amid higher-than-planned defense spending. With war-related expenditures expected to overshoot this year's budget by 4 trillion to 5 trillion roubles, the state needs functioning domestic capital markets more than ever — and depositors are voting with their feet.
There is also a policy contradiction at the heart of the problem. One arm of the government is squeezing more revenue out of the economy through higher taxes, fines and charges, while another — in the name of counter-terrorism — is disabling the digital infrastructure that makes those taxes collectable. Alexander Kolyandr, a fellow at the Center for European Policy Analysis, described the self-defeating dynamic:
One arm of the government is trying to squeeze as much money as possible out of people through higher taxes, fines and other charges. But another, in trying to counter so-called terrorist threats, is undermining that strategy by making it harder to collect tax.
Cyclical Panic or Structural Break?
The critical question is whether this is another 2022-style panic that will reverse, or a durable regime shift. The answer is both — and the distinction determines the economic cost.
The cyclical layer is real. Cash demand spiked after the September 2022 partial mobilisation and during the June 2023 Wagner mutiny, then partially receded as the shocks passed. Drone-attack intensity waxes and wanes; if the air war quiets and internet shutdowns stop, some transactional cash will flow back into accounts. Rate cuts also reduce the opportunity cost of holding zero-yield banknotes: the key rate has already fallen from its record 21% peak, and the central bank has signalled a gradual easing path, with its baseline forecast calling for an average rate of 14.5–14.6% in 2026 and 10.5–12.5% in 2027.
But the structural layer is what should worry policymakers, because it will not self-correct. Three things have changed for good. First, the tax regime has been permanently tightened — the 22% VAT and lower SME threshold are not temporary measures, so the incentive to operate in cash is now embedded in the tax code itself. Second, the property-rights compact has shifted: before 2022, Russian households broadly trusted banks as safe repositories; the deposit-seizure debate has introduced a political-risk discount that no interest rate fully offsets. Third, shadow-economy infrastructure is sticky. Once a shopkeeper learns to run two sets of books, once a customer gets used to paying cash for a discount, the behaviour persists after the original shock fades. The 6% of entrepreneurs already using grey schemes is a foothold, not a ceiling.
This is why the current episode is more dangerous than the 2022–2023 spikes. Then, cash was a panic hedge against an acute event; now it is a rational adaptation to a changed environment. Panic reverses. Adaptation compounds.
The Second-Order Risk: Financial Repression and the Digital Ruble
The first-order effect of cash hoarding is a smaller tax base. The second-order effect is a narrowing of the state's policy options — and each option carries its own cost.
If the Kremlin clamps down — restricting cash withdrawals, mandating digital payments, or accelerating the digital-ruble rollout — it risks confirming the very fear driving the flight. Coercion today produces more evasion tomorrow, pushing a larger share of the economy permanently underground. The timing is especially awkward: the state is preparing to roll out the digital ruble as its latest financial innovation at precisely the moment citizens are rediscovering the virtues of physical cash. A state-backed digital currency offers the authorities perfect visibility over transactions — which is exactly what cash-hoarding businesses are trying to escape.
If instead the state tolerates the leakage, it must finance a widening deficit with a shallower domestic pool. That points toward some combination of more aggressive bond placement with captive domestic buyers, pressure on banks to absorb issuance, or ultimately monetary financing — each of which stores inflation risk for later. The central bank's own forecast already expects annual inflation of 6.0–7.0% in 2026, well above its 4% target, with underlying inflation targeted back to 4–5% only in the second half of the year.
The transmission chain, then, runs: drone strikes and tax pressure drive cash flight; cash flight erodes the taxable and intermediable base; a narrower base forces harder war-finance choices; those choices either deepen evasion or deepen inflation. At the end of the chain is a state that is richer in roubles it prints and poorer in roubles it can tax.
The Counter-Case: Why This Could Still Reverse
The bear case for the structural-break thesis is straightforward: Russians have been here before, and positive real rates usually win. In 2022 and 2023, cash spikes reversed as the immediate shocks passed and deposit rates climbed. Today, a 10% one-year deposit against roughly 6–7% inflation offers a real return of 3–4 percentage points — a genuinely attractive yield by any historical standard. Rational savers should eventually prefer a guaranteed positive real return to zero-yield paper under a mattress. The state also retains coercive capacity: it can and does impose withdrawal limits, and it has shown willingness to freeze or redirect suspect funds selectively.
This counter-argument is strongest on the household-panic margin and weakest on the business-evasion margin. A frightened depositor may return once the drone threat recedes. A small business that has reorganised around cash to survive a 22% VAT burden has no reason to return at all — the tax code gives it a permanent incentive to stay out. The two flows look identical in the central bank's cash data, which is why the aggregate numbers can be misleadingly reassuring.
The falsifying signal is specific: if net monthly additions to cash in circulation fall back below roughly 200 billion roubles for two consecutive months following the central bank's 11 September rate meeting, the structural-break thesis weakens materially and the episode looks more like a recurrent panic. If, instead, outflows persist above that threshold through the autumn — particularly if accompanied by further rhetoric on deposits or a hard push on the digital ruble — the adaptation narrative is confirmed.
What to Watch: Horizons and Scenarios
Short term (weeks): The Bank of Russia meets on 11 September 2026 at 13:30 Moscow time. Markets will watch whether the 25-basis-point easing cycle continues and how the statement frames inflation risks after the summer fuel-price spike. Any hint of deposit-related measures, or an aggressive digital-ruble mandate, would likely accelerate withdrawals.
Medium term (quarters): Monthly central-bank cash-circulation data and bank deposit flows. The key question is whether the 2.6 trillion roubles that left banks from February to July begins to return once drone activity and internet shutdowns subside. Also watch oil prices: with oil and gas accounting for about a quarter of state revenues, a price decline would sharpen the fiscal pressure and raise the temptation to reach for domestic savings.
Long term (years): The size and stickiness of the shadow economy. If the 6% of entrepreneurs using grey schemes grows into a broad norm, Russia faces a structurally lower tax take, higher inflation risk, and a more repressive financial system — a smaller, poorer, less formal economy funding a large war.
Base case: cash flight moderates but does not reverse, leaving a permanently larger shadow economy and a modest but persistent drag on the tax base. Upside case: de-escalation of drone strikes, stable deposit rhetoric, and a return of positive real-rate attraction pull a meaningful share of cash back into banks by late 2027. Downside case: fiscal stress triggers explicit measures on deposits or forced bond placement, provoking a deeper flight into cash and foreign currency and accelerating financial fragmentation.
The rouble under the mattress is more than a survival habit. It is a vote of no confidence in the digital system, the tax compact, and the safety of savings — cast quietly, one banknote at a time, by people who have decided that in wartime, the only money you truly own is the money you can hold.
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