The Importance of Cash in War

War is brutal and yet here we are with war in Europe. Unbelievable. Yet again though, it underlines the need for cash. The run up to the war saw cyber-attacks on the Ukrainian ATM network and now the invasion has started the internet is not guaranteed, let alone power. Once again, cash is king.

One reason for the rush to cash is said to be the fear that cyber-attacks will target the banking system. At ATMs there are reports of 1,000 hryvnia ($33) cash withdrawal limits per transaction.

But even cash faces challenges. No wonder the National Bank of Ukraine (NBU) has appealed to people to continue to use electronic payments because maintaining the cash cycle is hard, describing it as their patriotic duty.

The NBU has been working hard to increase electronic payments over the last few years, but, according to Merchant Machine 2021 data, Ukraine is a significant cash user with 60% of transactions made in cash and an extensive ATM network, 96/100,000 people compared with the UK which has 110 and Germany at 120/100,000. 37% of the population are unbanked.

While Ukraine is living with the reality of war, Russia is experiencing the repercussions of the international response to its actions. A range of sanctions imposed by the EU, US, UK and other countries, including removing the access of some of its banks to the SWIFT payment system, caused the rouble to fall 30% on Monday 28 February and the stock exchange to be suspended.

In response, the government has stopped Russians from transferring foreign currency abroad or servicing foreign-currency debt outside of Russia. The Central Bank of Russia, whilst assuring the public that there is sufficient liquidity in the financial system, is reported to have told financial institutions to block foreign clients from selling Russian securities and has raised interest rates from 9.5% to 20% with the aim of maintaining the value of the rouble.

On the streets the result has been long queues of people at ATMs and bank branches wanting to withdraw cash, US dollars as well as roubles.

It remains to be seen what happens next in the conflict, and – in financial terms - how this will affect the everyday lives of ordinary people in both Russia and Ukraine. But all the indications are ominous.

And even the rest of the world, and in particular western countries, could well experience serious breakdowns in their banking and payment systems, given the possibility of cyber-attacks from Russia. This, we know from experience, is well within their capability.