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The rise of cash in the economy is another worrying trend. Demand for cash exceeded seasonal norms and reduced liquidity by 0.2 trillion rubles in May, the Central Bank calculated. Some of that additional demand for cash was linked to the holidays at the start of the month, but it follows on from the overall volume of cash in circulation hitting 17.15 trillion rubles in April: an all-time record. Deputy Governor of the central bank Alexei Zabotkin tried to explain away the trend, saying it was a quirk of the economies in occupied Ukrainian territory, where “the [Ukrainian] hryvnia is no longer in use.”
But away from the four regions of Ukraine that Russia calls its “new territories”, such high demand for cash suggests the “grey economy” is expanding, and points to growing anxiety among Russians about access to their bank accounts. Outwardly, there are no real danger signs on this front, but the State Duma continues to pass various wartime laws and, as one federal official said, this trend “cannot fail to influence public behavior.” Increased reliance on cash could even be linked with growth in cash payments by Yevgeniy Prigozhin’s Wagner Group, suggested Bloomberg economist Alexander Isakov. Whatever the reason, a sharp increase in the use of cash erodes Russia’s tax base and indicates a lack of public faith in those running the economy.
Remittance flows to Europe and Central Asia expanded 19% to a record high of $79bn in 2022, according to a World Bank report. The strong performance was due mainly to record high amounts of money transfers from the Russian Federation to neighbouring countries, it said. In a June 13 press release, the World Bank said: “The surging inflows of Russian remittances were driven by capital migration through the relocation of Russian companies and citizens, the strong ruble, and the increased demand for migrant workers in Russia. “In 2022, Ukraine remained the region’s largest recipient of remittances, receiving inflows of $17.1bn, a decline of 5.4% over 2021. In the first four months of 2023, the volume of remittances decreased by 11.5%, pointing to continued weakness in remittance flows to the country. In 2023, remittance flows to the region are projected to grow by 1%. The average cost of sending $200 to the region was 6.4% in the fourth quarter of 2022, up from 6.1% a year ago.”
The international payment infrastructure will switch from SWIFT to regional digital currencies within 5 years, First Deputy Governor of the Bank of Russia Olga Skorobogatova said at the St. Petersburg International Economic Forum (SPIEF) on June 16.
"I believe that within five years we will see how the international payment infrastructure will switch from SWIFT to the integration of national digital currencies," she said.
She added that 14 banks from three countries are currently collaborating with Russia under the Faster Payments System. "For example, 14 banks from three countries have already begun working with us within the Faster Payment
99 RUSSIA Country Report July 2023 www.intellinews.com