The volume of cash in circulation in Russia reached a new high of 17.8 trillion rubles ($198 billion) as of July 1, 2023, marking a significant increase of over 9% since the beginning of the year. This figure represents an astonishing $42 billion rise compared to the same month in the previous year. The central bank of Russia recently released this data, highlighting the country’s growing reliance on cash transactions.
According to the central bank, the surge in cash circulation can be attributed to several factors. Firstly, the increased demand for cash is partly due to the introduction of ruble banknotes in Russia’s new regions. These regions include the Donetsk and Lugansk People’s Republics, as well as the Kherson and Zaporozhye Regions. These territories were formerly part of Ukraine but voted to join Russia in referendums last year. As a result, these regions now exclusively use the Russian ruble as their official currency.
Additionally, the central bank noted that public-sector payments also contribute to the need for cash withdrawals. Many people prefer to withdraw a portion of their salary in cash, leading to an increased demand for physical money. Furthermore, the influx of tourists visiting Russia also plays a role in the rise of cash circulation.
However, concerns have been raised about the implications of this significant increase in cash usage. A report by Bloomberg suggests that the surge could indicate a decrease in confidence in local banks, worsening tax compliance, and a growing shadow economy. There are also claims that the increase in cash use is connected to payments made to the Wagner private military company, which until recently had a prominent role in the Ukraine conflict.
Analysts have pointed out various factors that could explain the growing cash circulation in Russia. One reason is the financing of the new regions, as well as inflation. The population’s transition to a savings-oriented behavior, where individuals prefer to keep their cash at home, also contributes to the increased reliance on physical currency.
Furthermore, the rising exchange rates of the US dollar and euro have led to an increased demand for the Russian ruble throughout the country. Russian Deputy Minister of Economic Development, Vladimir Ilyichev, stated that the share of the US dollar and euro in Russia’s settlements decreased from 90% in early 2022 to below 50% by the end of the year. He further revealed that the Russian Finance Ministry expects this share to diminish to 10-15% by the year’s end, depending on various scenarios.
In conclusion, Russia’s cash circulation has reached a record high, with 17.8 trillion rubles ($198 billion) in circulation as of July 1, 2023. The increased demand for cash is partially due to the adoption of the ruble in new regions and public-sector payments. However, concerns have been raised regarding the implications of this surge, including a potential decrease in confidence in banks and a growing shadow economy. The rise in cash circulation is also linked to the financing of new regions, inflation, and a shift towards a savings-oriented behavior. Additionally, the weakening of the US dollar and euro exchange rates has contributed to the growing reliance on the Russian ruble.