More than four years into Russia’s ongoing conflict with Ukraine, a dramatic shift toward cash transactions is sweeping the country, driven by two interconnected forces: repeated mobile internet shutdowns ordered to counter Ukrainian drone strikes, and growing numbers of businesses turning to off-the-books operations to survive mounting financial and tax pressures.
New analysis of Russian Central Bank data conducted by the BBC reveals that the nation has injected 1.56 trillion roubles (equivalent to $20 billion or £14.8 billion) into cash circulation since the start of 2026. This marks the largest first-half increase in cash supply outside the acute disruption of the Covid-19 pandemic, underscoring the scale of the current trend.
The immediate trigger for the latest spike in cash demand has been a series of widespread mobile internet outages implemented by the Kremlin to disrupt Ukrainian drone operations. Without stable connectivity, digital card payments and mobile transactions frequently fail, leaving millions of consumers unable to complete purchases unless they have physical banknotes on hand. For many ordinary Russians, holding cash has become a simple hedge against the uncertainty of wartime life. “Having cash on hand gives you some sense of control and security,” a Moscow resident, speaking on condition of anonymity, told the BBC. “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.”
This is not the first time cash withdrawals have surged during the war. Previous spikes occurred after President Vladimir Putin announced partial mobilization in September 2022, and again during the short-lived Wagner mercenary group mutiny in June 2023, as Russians rushed to build a financial buffer against chaos. What makes the current shift unique is its lasting impact on state finances, coming at a moment when the Kremlin is already grappling with a widening budget deficit and urgently needs additional revenue to fund its military campaign in Ukraine.
While Russia’s oil and gas sector – which generates roughly a quarter of all state revenue – has seen a short-term boost from rising global oil prices following the Iran conflict, the broader domestic economy is slowing sharply. In May 2026, the Russian Ministry of Economy downgraded its full-year GDP growth forecast to just 0.4%, which would be the weakest annual expansion the country has seen since 2022.
To close the budget gap, the Kremlin implemented a controversial tax hike in January 2026, raising the standard value-added tax (VAT) from 20% to 22% and lowering the income threshold that requires small and medium-sized enterprises (SMEs) to pay the tax. The change has squeezed already thin profit margins for countless small businesses, pushing many toward informal cash operations to underreport their income and avoid the full tax burden.
From neighborhood pharmacies and family restaurants to beauty salons and local corner shops, more merchants are now encouraging customers to pay with cash to keep transactions off official books. “Stalls at our market have been closing one after another because it’s no longer profitable to stay open,” said the owner of a small clothing boutique at a market in Pskov, a western Russian city. “Most of those still trading ask customers to pay in cash whenever they can, so less money goes through the till.”
The trend extends even to employee wages. Taras Skvortsov, chief financial officer of Sberbank, Russia’s largest financial institution, warned in a recent June 2026 address that there are “very serious signs” of a rise in under-the-table “envelope wages” that avoid payroll tax. Cited by Russian state news agency Interfax, Skvortsov noted: “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.”
A May 2026 survey conducted by Opora Russia, the country’s largest small business association, found that roughly 6% of entrepreneurs have already adopted “grey economy” schemes to cope with the new higher tax burden, including skipping official cash register receipts. For businesses, cash transactions allow them to underreport total turnover to remain below the mandatory VAT threshold, while unreported cash wages cut their payroll tax obligations.
The growing shadow economy puts the Kremlin in a contradictory position. Cracking down on informal activity has been a top policy priority for the Russian government: before the VAT hike took effect, Putin publicly warned that the new rules must not push businesses into the informal sector, and called for a “radical reduction in illegal employment.”
Analysts point out that the Kremlin’s own policies are working at cross-purposes. “One arm of the government is trying to squeeze as much money as possible out of people through higher taxes, fines and other charges,” said Alexander Kolyandr, non-resident senior fellow at the Center for European Policy Analysis. “But another, in trying to counter so-called terrorist threats, is undermining that strategy by making it harder to collect tax,” he explained, referencing the routine mobile internet shutdowns that have made digital payments unreliable.
Even with the Central Bank holding interest rates high to combat war-driven inflation – offering double-digit returns on bank deposits that should incentivize keeping money in accounts – the old Soviet-era habit of holding cash “under the mattress” is making a rapid comeback. Sberbank currently offers a 10% annual interest rate on 100,000-rouble one-year fixed deposits, yet Central Bank data shows that Russians withdrew 550 billion roubles from bank accounts in May 2026 alone, including 200 billion roubles from fixed-term savings products.
For consumers, the shift is also being driven by businesses offering incentives for cash payments. Anton, a Moscow-based copywriter, told the BBC he recently received a discount for paying cash at a local vinyl record shop, with the vendor openly citing higher taxes as the reason. During the heightened security and mobile internet shutdowns around Russia’s May Victory Day celebrations, Anton said he witnessed widespread disruption at a central Moscow flower market, where customers scrambled to find working ATMs that still had cash available. “There was a woman going from one ATM to another, looking for one that still had banknotes,” he recalled.