Russians are withdrawing record amounts of cash from the country’s banks amid growing concerns that the Kremlin could seize deposits to fund the war in Ukraine.
During the first two weeks of August, cash in circulation increased by 286.4bn roubles (£2.5bn), marking the seventh consecutive month of money leaving Russia’s banking system, according to central bank data.
Analysts and insiders have linked the shift to growing instability caused by Ukrainian drone attacks, worsening economic expectations and fears that the government could freeze deposits or suddenly restrict withdrawals.
Russians are increasingly feeling the impact of Vladimir Putin’s invasion of Ukraine, now in its fifth year, as Kyiv continues long range drone attacks against Moscow’s oil refineries and other economic targets.
“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.
According to the data, Russian banks experienced cash outflows every working day in August, with the largest daily withdrawal, 56.8bn roubles, recorded on August 12.
The withdrawals followed a record outflow in July, when more than 620bn roubles were taken from banks, bringing the total withdrawn since the beginning of the year to 2.4 trillion roubles.
The figure is higher than the two trillion roubles withdrawn during the first year of the invasion in 2022, most of which was taken in the first two weeks of February and March as households and businesses rushed to access their funds.
The increased demand for cash has reduced banks’ rouble liquidity, forcing the Central Bank of Russia to increase lending to the banking sector.
The rouble liquidity deficit has reached its highest level since March 2022, according to Russian outlet RBC. The shortage has also left some banks without sufficient cash to buy government bonds.
Earlier this year, rumours circulated on Russian Telegram channels that the government was preparing to freeze bank deposits. Anton Siluanov, Russia’s finance minister, dismissed the reports as “fake news”. Economic analysts have also said such a measure is highly unlikely.
The Kremlin’s decision to shut down mobile internet across parts of Russia, making it difficult for residents to use bank cards, has also increased demand for physical cash.
Other factors include tax increases, persistent inflation and tighter government monitoring of financial transactions.
“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.”
Large companies are also moving money abroad to protect their assets from possible seizure by Russian regulators. About 800bn roubles were withdrawn from the country during the second quarter of this year.
Billionaire elites are reportedly becoming increasingly concerned about the Kremlin’s extensive nationalisation campaign, which has transferred trillions of roubles into state control, as well as Ukrainian attacks on businesses aimed at increasing pressure on Russia’s economy.
However, Putin’s efforts to obtain “donations” from oligarchs to support Russia’s struggling war economy in March generated hundreds of billions of roubles for the federal budget by mid August, according to Moscow based business newspaper Vedomosti.
Russian optimism about the economy also fell to a record low this year. A survey published by polling agency in June found that 60 per cent of Russians believed economic conditions in their country were deteriorating.
At the weekend, Putin dismissed the chief economist of Russia’s second largest bank after Russian media reported his critical remarks about the country’s economic situation and suggested that Moscow would lose a “war of attrition” against Ukraine.
The Bell reported that Andrei Klepach, who had held the position since 2014, was dismissed on Kremlin orders after authorities became aware of his speech, which he delivered in May.
