Money is leaving Russian banks at a historic pace as the Kremlin struggles to fund its war effort. Depositors have withdrawn more than $15 billion in just the past three months, a rate that could nearly double the record pace seen in 2022, when Vladimir Putin launched his invasion of Ukraine.
Cash under the pillow
The outflow began to accelerate this summer. Russians pulled $4.5 billion from banks in June and $7.3 billion in July. In the first half of August alone, another $3.4 billion was withdrawn, according to central bank data cited by the Washington Post.
The speed of the run has increased, and many people seem to be reacting to the reality on the ground. Drones are flying. Things are burning down. Nervousness is growing. And people’s everyday wisdom may be kicking in that they need to have cash under their pillow and not somewhere in banks where it may never be returned, a former finance official told the Post.
The banking sector is facing a double whammy. Banks have much of their capital tied up in loans that aren’t being repaid, while the government has directed lenders to offer capital to the defense industry. Many of those loans have turned into bad debts, leaving institutions with little liquidity.
Taras Skvortsov, a senior executive at top retail lender Sberbank, told Russian radio that many banks don’t have cash on hand to buy government bonds. The finance ministry has halted bond auctions indefinitely amid higher borrowing costs and weak investor demand, which are the Kremlin’s main sources of domestic borrowing.
That debt crisis isn’t theoretical. The budget is sinking into deeper deficits, the sovereign wealth fund has been nearly depleted, and tax hikes are straining consumers already struggling with high inflation. The budget gap hit $76 billion at the end of July, forcing the government to look elsewhere for cash.
Related: Trump aide films video to avoid scrutiny
The leader of Russia’s Communist Party recently told parliament that 130 trillion rubles held in bank accounts should be “mobilized” to address the country’s economic woes. The finance ministry is also preparing legislation that could let it gain access to $40 billion in pension savings held in privately managed funds.
If the government needs cash, Putin will just do a grab for assets. He doesn’t care. And that’s where I think it’s heading, according to an associate of a Russian billionaire who spoke to the Post.
The financial situation mirrors Russia’s performance on the battlefield. New Ukrainian tactics and drones have halted Russia’s advance, decimated the country’s oil infrastructure, and pushed casualties above the replacement rate.
Preparing for more seizures
Just as the financial sector is being scavenged for funds, reports indicate the military is preparing to ramp up the number of men it seizes to fill the ranks. Authorities have already been using coercive tactics to find fresh troops, but sources told the Wall Street Journal that the military is preparing plans and procedures for a wider mobilization.
Because of an expected political backlash, the Kremlin may wait until after parliamentary elections next month to announce it. An earlier mobilization in September 2022 set off a mass exodus of hundreds of thousands of men, who fled to neighboring countries like Georgia and Kazakhstan.
Rumors of a new one have already sent cross-border traffic soaring. Property prices have jumped recently in Georgia and Armenia in anticipation of another exodus, real estate agents told the Journal.
Leave a Reply