Despite 10% Annual Interest, Russians Pull Out Cash as Fears of Deposit Nationalization Spread

4.81 Trillion Won Withdrawn in Two Weeks in Russia
Mobile Networks Cut to Block Drones, Payments Paralyzed
Experts Point to "Fear of Government Deposit Nationalization"

Russian citizens are withdrawing money from banks, even as annual deposit interest rates hover in the 10% range.

Citizens passing by the office of Sberbank, Russia's largest bank. Photo by Reuters Yonhap News Agency

On August 18 (local time), the Washington Post (WP), citing data from the Central Bank of Russia, reported that "between the 1st and 14th of this month, 286.4 billion rubles (about 4.81 trillion won) were withdrawn from Russian banks." The scale of outflows in July was 730 million dollars (about 10.32 trillion won), and in June, 450 million dollars (about 6.36 trillion won). There has not been a single month this year without a net cash outflow, which now totals 2.5 trillion rubles (about 45.23 trillion won). This figure surpasses the 2 trillion rubles (about 34.91 trillion won) withdrawn during the first year after the invasion of Ukraine in February 2022, and it has only taken seven months to do so.

Sberbank, Russia's largest bank, set its one-year time deposit interest rate at 10% this year, but withdrawals have continued. In an interview with Russian radio broadcaster RBK, Sberbank Chief Financial Officer Taras Skvortsov projected that "the amount of withdrawals this year will jump to twice the level of the first year of the invasion." He noted, "Large sums are being taken out every month," adding, "If this trend continues, the situation cannot improve."

Telecommunications Disruptions Paralyze Payments... 343 Trillion Won in Circulating Cash

The immediate trigger for the withdrawals has been disruptions to telecommunications. As Ukraine ramped up drone attacks targeting key Russian cities and infrastructure this year, Russian authorities have responded by repeatedly shutting down mobile networks in cities, claiming it is to interfere with the drones' communications and navigation. In areas where mobile service is down, card terminals and online payments do not work. Experts pointed out that this has led to a surge in demand for withdrawing cash in advance. On the other hand, the cash in circulation outside of the Russian banking system is estimated at 19 trillion rubles (about 343.5 trillion won), an increase of more than 17% compared to a year ago.

Additionally, anxieties over the potential seizure of deposits have compounded the situation. Last month, Gennady Zyuganov, leader of the Russian Communist Party, argued that "to fund the war, tens of trillions of rubles in private funds locked up in banks need to be mobilized." A former senior official in Russia's Ministry of Finance, speaking on condition of anonymity, told WP, "As drones fly overhead and fires break out here and there, unease has grown. Fears have emerged that money deposited in banks might not be returned, leading to a revival of the old wisdom to keep cash under one's pillow."

Alexandra Prokopenko, former advisor to the Central Bank of Russia, told WP, "It means people do not trust the Russian banking system or the financial system," pointing to the "fear sparked by concerns the government might nationalize deposits." While she regards the risk of actual nationalization as low, she added, "I do not rule out the authorities imposing restrictions on withdrawal limits."

"No Major Power Fails to Issue Government Bonds During War"

Image of Russian ruble currency to aid article understanding. Photo by Reuters Yonhap News

Deposit outflows have now spread to the government bond market. On July 20, the Russian Ministry of Finance indefinitely halted its weekly government bond auctions. OFZs are government bonds issued by Russia in rubles to cover fiscal deficits, and the major buyers funded by deposits have been Russian banks. Experts noted, "With withdrawals accelerating, a significant number of banks have found themselves without even the cash needed to purchase government bonds."

Craig Kennedy, a researcher at the Davis Center for Russian and Eurasian Studies at Harvard University, told WP, "No major power repeatedly fails to issue government bonds in the midst of war," adding that "the indefinite suspension of OFZ issuance is an ominous sign that Russia has overextended itself."

Russia's economic situation is deteriorating. From January to July, the federal budget deficit was 6.46 trillion rubles (about 107.57 trillion won), already surpassing this year's target of 3.8 trillion rubles. The gross domestic product (GDP) growth rate in the first half of the year reached just 0.3%.

This content was produced with the assistance of AI translation services.