Russians are withdrawing record sums of cash from the country’s banks amid mounting fears that the Kremlin could raid deposits to bankroll the war in Ukraine.
The first two weeks of August saw the volume of cash in circulation rise by 286.4bn roubles (£2.5bn), marking an outflow from the Russian banking system for a seventh consecutive month, according to central bank data.
Analysts and insiders attribute the behavioural shift to escalating instability caused by Ukrainian drone attacks, economic pessimism and fears that the state could freeze deposits or impose a sudden cap on withdrawals.
Russians are increasingly feeling the effects of Vladimir Putin’s invasion of Ukraine, now in its fifth year, as Kyiv continues to launch long-range drone strikes against Moscow’s oil refineries and other economic targets.
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“Drones are flying. Things are burning down. Nervousness is growing. And people’s everyday wisdom may be kicking in that they need to have cash under their pillow and not somewhere in banks where it may never be returned,” a former finance official told The Washington Post.
Every working day of August has seen the banks haemorrhage cash, according to the data, with the highest outflow of 56.8bn roubles recorded on Aug 12.
It followed a record outpouring of money in July, when more than 620bn roubles were withdrawn, bringing the accumulated total from the beginning of the year to 2.4 trillion roubles.
This exceeds the two trillion roubles removed in the first year of the invasion in 2022, most of which was drained during its initial two weeks in February and March as households and businesses rushed to withdraw money.
The surge in cash demand has drained banks’ rouble liquidity, prompting the Central Bank of Russia to expand lending to the banking sector.
The rouble liquidity deficit has stretched to a record high since March 2022, the Russian outlet RBC reported. These constraints have left many banks without enough cash to purchase government bonds.
Earlier this year, rumours spread across Russian Telegram channels about a forthcoming freeze on Russians’ bank deposits. Anton Siluanov, the Russian minister of finance, issued a statement calling the posts “fake news”. Economic analysts have said such a move would be highly unlikely.
The Kremlin’s decision to shut down mobile internet across swathes of the country, preventing Russians from using their cards, has also prompted a greater need for cash.
Tax increases, stubborn inflation and stricter government scrutiny of financial transactions are among the other likely factors.
“It took Russia less than a decade to become one of the world’s leaders in cashless payments,” The Bell, an independent Russian economic publication, said earlier this year.
“Now, because of the actions of the Russian authorities, Russians are increasingly turning to cash: higher taxes are hitting businesses, while internet shutdowns are making cashless payments unreliable.”
Adding to the pressure, large companies are also moving funds abroad to shield their assets from potential seizure by Russian regulators. In the second quarter of this year, some 800bn roubles were withdrawn from the country.
Billionaire elites are said to be growing unnerved both by the Kremlin’s sweeping nationalisation campaign, which has brought trillions of roubles under state control, and by Ukraine’s strikes targeting enterprise to ramp up the pressure on Russia’s economy.
However, in a windfall for Putin, his efforts to secure “donations” from oligarchs to prop up the country’s ailing war economy in March brought hundreds of billions of roubles into the federal budget by mid-August, the Moscow-based business daily Vedomosti said on Monday.
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Russians’ optimism about the economy plummeted to a record low this year. A survey published by the polling agency in June found that 60 per cent of Russians believed local economic conditions were getting worse.
At the weekend, Putin sacked the chief economist of Russia’s second-largest bank after Russian media reported on his critical comments about the country’s economic condition and suggested that Moscow would lose a “war of attrition” against Ukraine.
The Bell reported that Andrei Klepach, who had held his post since 2014, had been fired on orders from the Kremlin after it became aware of his speech, which was delivered in May.
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