(MOSCOW, RUSSIA) – Russians are withdrawing record amounts of cash from the country’s banks amid growing fears that the Kremlin could seize private deposits to fund its ongoing war in Ukraine, according to US and British media reports.
Data from Russia’s Central Bank shows citizens are withdrawing rubles in unprecedented volumes. This follows a similar, large-scale rush to withdraw private savings at the start of Moscow’s full-scale invasion of Ukraine.
Analysts suggest the Kremlin’s struggle to manage Ukraine’s intensifying drone attacks is a contributing factor, as a growing number of Russian citizens begin to feel the direct impact of the war. This week, Russian media reported that more than 70 percent of service stations nationwide had run out of fuel.
Benjamin Hilgentock, director of the centre for geoeconomics and resilience at KSE Institute, stated that public concern is justified. He noted that seizing deposits is an option the government could eventually use as a financing channel. He added that Russia’s fiscal issues are “getting worse and worse.”
Hilgentock suggested, however, that the Kremlin would likely take several intermediary steps before such a drastic measure, as it would be “very, very disruptive” and could fundamentally undermine confidence in the banking system, risking a widespread banking crisis.
He explained that Russia is facing major issues funding its budget and the war. The Ministry of Finance has largely relied on the Treasury Department’s cash held in accounts with commercial banks, a strategy Hilgentock described as “selling the silver.”
Russia’s other financing channels are severely constrained. The government has experienced several failed auctions to sell domestic debt to Russian banks, leading to cancellations. Hilgentock commented, “This is generally not something that happens to great powers during a war.” The sovereign wealth fund is also increasingly depleted.
Hilgentock observed that the Russian economy is not performing well but stated this is not new and is not the most critical factor for Russia’s ability to continue the war. The more pressing issue is the state of the Russian budget and banking system.
Russian banks are currently experiencing serious liquidity issues and are no longer willing to purchase government debt to the same extent as before. This has led to the failed auctions. A key reason for these liquidity problems is that people are withdrawing cash. Consequently, the central bank has been supplying additional liquidity to keep banks stable, a process Hilgentock expects to continue at a heightened level.
Addressing the effectiveness of international sanctions, Hilgentock, a former member of the international working group on Russian sanctions, said they “have certainly proven to be effective,” though not to the extent hoped for.
He noted that sanctions on Russian energy have reduced budget revenues, and restrictions on foreign investors in the Russian debt market have pushed the country into an “unpleasant corner.” Unlike other emerging markets that can borrow from international investors, Russia is now reliant on its domestic financial system and banks as the primary buyers of its debt.
Hilgentock emphasised that some budget issues are simply due to the high cost of waging a war of aggression for several years, a burden made more challenging by sanctions.
Looking forward, he identified Russia’s energy revenues as the key area for exerting further economic pressure. He mentioned that recent high energy prices linked to the situation in the Middle East provided Russia with “windfall earnings,” which bought the government some time. He suggested that a normalisation of international energy markets would be the most impactful measure to limit Russia’s ability to sustain the war.
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