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Russia: Cash Demand During the Wagner Revolt

Categories : Cash is a contingency and fall-back solution, Cash is the most widely used payment instrument, Cash is trust
September 4, 2023
Tags : ATMs, Cash, Cash and Crises, Central Bank, Russia
Cash in circulation in Russia has expanded dramatically since the Ukraine invasion. In June 2023, the demand for rubles and foreign cash spiked as Wagner forces approached Moscow.
Manuel A. Bautista-González

Ph.D. in U.S. History, Columbia University in the City of New York

Post-Doctoral Researcher in Global Correspondent Banking, 1870-2000 – Mexico and South America, University of Oxford

This post is also available in: Spanish

Cash in Circulation Growth Since the Covid-19 Pandemic

“The increase in cash reflects an assessment of business risks and uncertainty in the economy.” – Sergey Dubinin, former governor (1995-1998) of the Central Bank of the Russian Federation (CBR).

Cash in circulation increased vigorously in Russia since the Covid-19 pandemic. According to the Central Bank of the Russian Federation (CBR, 2023), currency issued grew by 6.9% monthly in March 2020, when the World Health Organization declared the Covid-19 pandemic (see Graph 1).

Graph 1. Russia: Currency Issued, January 2020-June 2023 (Trillions of Rubles, Jan. 2020 = 100)

Note: Currency issued includes cash in vaults of credit institutions and excludes cash in CBR vaults, ATMs, cash in transit, precious metals and coins in circulation.
Source: Monetary and Financial Statistics (Monetary Base-Broad Definition), CBR (2023).

Cash in circulation grew at a 14.7% monthly rate in February 2022, when precautionary demand for cash increased as Russia invaded Ukraine. By June 2023, the currency issued was nearly 75% higher than its value in January 2020. Per the CBR, cash in circulation in Russia stood at 17.9 trillion rubles (Rb) as of July 1, 2023.

Demand for cash in Russia has soared since the beginning of the Ukraine war. According to Bloomberg Economics, as of June 23, excess cash outflows from banks rose to Rb 2.2 trillion. Per the CBR, the increase stemmed from increased demand in newly annexed territories, government transfers to citizens, and cash for the May holidays.

Per Graph 2, the banknotes prevailing in circulation are those of 5,000 Rb (39%), 1,000 Rb (19%) and 100 Rb (16%). The most abundant coins are the 0.10 Rb (35%) and the 1 Rb (14%).

Graph 1. Russia: Denomination of Banknotes and Coins as of July 1, 2023 (Shares)

A. Banknotes

B. Coins

Source: CBR (2023).

Demand for Cash Spiked as Wagner Group Marched Towards Moscow

The demand for cash in Russia jumped when Wagner Group mercenaries marched on Moscow in June. On Friday, June 23, Yevgeny Prigozhin, founder and leader of the Wagner Group, claimed that Russia’s military had launched a missile strike against Wagner fighters. Between that day and June 25, cash in circulation increased by Rb 105.3 billion (approximately $1.1 billion):

“The outflow of liquidity from banks was due to the growing demand for cash […] The demand for cash increased in June and resulted in a liquidity outflow of Rb 0.5 trillion, of which Rb 0.1 trillion occurred on June 23-25. The increase in the volume of cash in circulation does not lead to problems in the conduct of monetary policy. The Bank of Russia [will] consider the associated liquidity outflow when determining the parameters of its operations with banks.” – CBR (2023: 3).

According to the business newspaper RBC, that was “the most noticeable surge in demand for cash” since September 22-23, 2022, after the Russian government announced a partial military mobilization (the first since World War II) when cash in circulation increased by Rb 132.1 billion and Rb 114.2 billion, respectively. The CBR deputy governor Sergey Belov, a military officer, oversees Russia’s cash circulation.

“This is a record amount since last year’s ‘partial mobilization announcement. Back then, millions of Russians fled the country. So, this cash withdrawal may reveal the same approach to the turmoil,” tweeted Sviat Hnizdovskyi, founder of the Open Minds Institute in Ukraine.

Run for Foreign Cash

Demand for roubles and foreign cash spiked as the Wagner Group marched towards Moscow on Saturday, June 24. The ruble hit a 15-month minimum that day: banks offered exchange rates of over Rb 100 per dollar, higher than the official rate of Rb 84.0793 (see Graph 3).

Graph 3. Russia: Ruble Exchange Rate (RUB) Against Foreign Currencies, January 2019-June 2023 (Rubles Per Currency)

Note: USD, U.S. dollar; EUR,  euro; CNY, Chinese yen. Source: “Monetary conditions and transmission mechanism of monetary policy – June 2023,” CBR (2023: 19).

Many Russians made plans to get out of Moscow. Direct flights to Tiflis, Astana, and Istanbul sold out as Wagner troops marched, reported Der Spiegel. The rebellion ended after Wagner forces seized the southern city of Rostov-on-Don. Prigozhin left Russia and arrived in Belarus on Tuesday, June 27. Demand for foreign currencies surged in 15 regions, said first deputy prime minister Andrei Belousov:

“On average, it was about 30%, but most active growth in demand for cash was recorded in southern regions – in Voronezh, Rostov and Lipetsk, as well as in large cities. Demand there increased by about 70-80%.”

CBR governor Elvira Nabiullina said the ruble’s depreciation was “significantly amplifying pro-inflationary risks.” Restrictions on foreign exchange withdrawals will continue through September 9 due to “sanctions on the import of foreign currency cash by Russian banks,” said Nabiullina.

Wagner Cash Bags

According to Bloomberg, money paid to Wagner mercenaries and the relatives of fighters killed in Ukraine has fueled a cash boom in Russia. Wagner mercenaries earn monthly wages of Rb 240,000 and bonuses in “black cash,” per Prigozhin. Wagner has always conducted business in cash to avoid international sanctions.

“All disbursements, bonuses, funeral payouts and others have always been made only in cash, in envelopes – both then and now.” – Marat Gabidullin, former Wagner field commander who worked with Prigozhin until 2019.

Fighters’ widowers receive bags of Rb 5 million ($60,000), told several women to Bloomberg. Many are advised not to deposit cash at banks. Oksana from Chelyabinsk (Urals region), whose husband died in Bakhmut, said she wanted no “problems” with tax authorities as “Wagner paid everything it was supposed to. We already bought an apartment.”

After the mutiny, Prigozhin claimed Russian security officers confiscated cardboard boxes containing Rb 4 billion (more than €43 million) in banknotes. “Cash was indeed found. For 10 years I have only used cash” to pay Wagner salaries and compensations to dead fighters’ families, said Prigozhin. Prigozhin died when his plane crashed near Moscow on August 23.


This post is also available in: Spanish