Russians are withdrawing billions of rubles from banks due to growing concerns that the government might seize deposits to finance the war in Ukraine. The first two weeks of August saw a 286.4 billion ruble increase in cash circulation, approximately £2.5 billion.
Daily outflows have been significant, with August 12 recording the highest single-day withdrawal of 56.8 billion rubles (£491.9 million), according to central bank data. This follows a record outflow of over 620 billion rubles (£5.4 billion) in July, marking the seventh consecutive month of money leaving the Russian banking system.
Analysts attribute this trend to increasing instability stemming from Ukrainian drone attacks on economic targets, widespread economic pessimism, and fears of potential deposit freezes or withdrawal caps imposed by the Kremlin. The Russian finance minister has dismissed rumors of a deposit freeze as "fake news," and economic analysts consider such a move unlikely.
Large Russian companies are reportedly moving funds abroad to safeguard assets from potential regulatory seizure. Russia's billionaire class is also reportedly unnerved by state control over trillions of rubles and the ongoing Ukrainian strikes.
Escalating Drone Attacks and Military Setbacks
Recent weeks have seen a significant escalation in long-distance attacks by both Ukraine and Russia, contributing to the highest civilian death toll since the early months of the conflict in 2022. Ukraine launched a large-scale drone assault on Moscow on a recent Tuesday, with officials reporting widespread damage and casualties. Russian air defenses claimed to have destroyed over 180 drones in the Moscow region, though three people, including a child, were wounded. Energy facilities and warehouses, including those belonging to e-commerce giant Wildberries, were reportedly targeted.
These developments come as frontline fighting remains largely static and peace talks are frozen. The cancellation of the Spasskaya Tower International Military Music Festival, an event favored by President Putin, due to safety concerns over potential drone and missile strikes in central Moscow, is seen as a further humiliation.
Cross-Border Incidents and Russian Retaliation
The conflict's impact has extended beyond Ukrainian borders. A Russian drone-missile exploded in a cornfield in neighboring Moldova, with Moldovan President Maia Sandu suggesting that such incursions into regional airspace, similar to past incidents in Romania and Poland, are either accidental or deliberate provocations by the Russian Federation.
Meanwhile, a Russian missile attack in Ukraine's northeastern Kharkiv region killed 10 people and injured eight. Ukrainian President Volodymyr Zelenskyy condemned the strike and called for international partners to increase pressure on Russia. Ukraine has stated that facilities like Wildberries warehouses are targeted because they supply components for Russian drones.
The surge in cash demand has strained the liquidity of Russian banks, prompting the Central Bank of Russia to expand lending to the sector. Many banks are reportedly struggling to acquire enough cash to purchase government bonds.