Amid the intensification of Ukrainian drone attacks and growing fears that the Kremlin may confiscate deposits to finance the war, Russians are withdrawing billions of dollars from the country’s banks.
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According to data from the Central Bank of Russia, cited by The Washington Post, nearly $3.4 billion was withdrawn in the first two weeks of August. This figure adds to the $7.3 billion taken out in July and more than $4.5 billion withdrawn in June.
The amount withdrawn so far this year has already exceeded the $24.7 billion taken out during the first year of Russia’s large-scale invasion of Ukraine in February 2022.
Withdrawals are causing liquidity problems for banks and making it difficult for the government to obtain financing through bond issuance to cover its war expenses.
This is the second largest capital outflow in more than a decade; the record still belongs to March 2022, when approximately $25.9 billion was withdrawn following the invasion and the first wave of Western sanctions. The drop in profitability has contributed to this situation, with Sberbank’s one-year deposit benchmark interest rate reduced to about 10% from 15% at the beginning of the year, according to the BBC.
“There are drones flying. There are fires. Nervousness is increasing. And people are starting to realize they need to have cash under the pillow and not in some bank where they might never get it back,” a former finance official told The Washington Post, who, like others, spoke on condition of anonymity to discuss sensitive matters.
Alexandra Prokopenko, associate researcher at the Carnegie Center for Russia and Eurasia in Berlin, cited by United 24 Media, interpreted the exodus as a consequence of fear that the state would nationalize deposits to finance the war. She considers that outcome unlikely, although she notes that limits on cash withdrawals cannot be ruled out.
The flight to cash has been building throughout the year. By the end of May, the amount of currency in circulation outside the banking system had increased by approximately $13.6 billion since January, the fastest increase since the coronavirus pandemic and the largest May increase recorded since 1995.
“If there is an ominous sign of imperial overreach, this is clearly one of them,” Craig Kennedy, former vice president of investment banking at Bank of America Merrill Lynch and currently a researcher at Harvard University’s Davis Center for Russian and Eurasian Studies, told The Washington Post.
“Great powers do not suffer repeated failures in Treasury bond issuance amid a war,” he added.
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As a result of government orders to increase loans to the defense sector, Russian banks “appear to have so much exposure to non-viable borrowers that they are unsure how it will be restructured, when it will be restructured, and how much of that they will have to bear,” he said.
Meanwhile, in Ukraine, which faces daily Russian bombings, some supermarket shelves have experienced supply problems due to Russia’s attacks on critical distribution centers.
On August 5, missiles launched by Moscow hit at least four warehouses of a supermarket supplier company, killing at least six workers and severely disrupting food supply to several store chains. The consequences have been felt mainly in the capital but also in remote places like Zaporizhzhia in southeastern Ukraine, The New York Times reported.
And in the early hours of Thursday, Russia again attacked food warehouses near Kyiv, although the extent of the damage caused by the missile attacks was not yet clear.
Dmytro Krymsky, co-founder of the Goodwine store, estimates that attacks over the past three weeks have cost Ukrainian companies around $500 million. Even more worrying is Russia’s new tactic of targeting civilian cargo ships using Ukrainian Black Sea ports, threatening a much larger part of the economy, The Economist magazine indicated.
“The campaign against Ukraine’s civilian logistics is a long-planned escalation of the conflict, made possible by a recent shift in the air war. Russian production of ballistic missiles is increasing just as Ukraine’s supply of interceptors has decreased. Ukrainian defenders can now only protect a few high-priority targets. In July, Russia benefited from launching a record 198 ballistic and hypersonic missiles, mainly against the Kyiv region,” the publication added.
Missiles have also destroyed a warehouse of another supermarket chain; a distribution center of Rozetka, an online shopping platform; and a sorting center of Ukraine’s national postal service. Warehouses of major Ukrainian publishers have been repeatedly attacked this summer.
Supermarket chains said they expected to fully restock their supplies by Monday, Ukraine’s Independence Day.
