Russians are returning to cash payments as Ukrainian drone attacks and rising taxes impact the economy.

Russians are increasingly turning to cash as the country faces mounting financial pressure from the war in Ukraine. Central Bank figures show that 1.56 trillion roubles in cash entered circulation since the start of the year, marking the largest increase for this period outside of the Covid-19 pandemic. The shift is driven by frequent mobile internet shutdowns caused by Ukrainian drone strikes, which often make card payments impossible. Additionally, the Kremlin raised the VAT from 20% to 22% in January, prompting many businesses to favor cash to keep income off the books and stay below tax thresholds. Taras Skvortsov, chief financial officer of Sberbank, noted that many companies are now paying wages "in envelopes" to avoid formal documentation. While the administration seeks to maximize tax revenue to fund the war, the return to cash complicates collection efforts. Despite high bank deposit rates, Russians continue to withdraw significant sums, seeking a sense of security and control against the backdrop of a slowing economy and ongoing wartime uncertainty.

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