Russia's Covert Money Printing Operation
The Russian government is secretly creating money to cover its budget shortfall by selling federal loan bonds (OFZ) to banks. These banks then use the bonds as collateral to borrow from the Central Bank of Russia through repurchase agreements. Economist Vladislav Inozemtsev warns that this tactic is fueling inflation and driving down the ruble's value.
Rather than lending directly to the government, the Central Bank allows the Treasury to auction off 300-400 billion rubles worth of bonds every week. In a single day last November, a record 1.8 trillion rubles in OFZ bonds were sold. Inozemtsev points out that the Central Bank channels 75% of its profits back to the state, effectively cutting the government's real borrowing costs to 7-8% annually—even though official interest rates stand at 14-15%.
Economic Forecasts and Fallout
The total hidden money creation for this year is projected to reach 7 trillion rubles. Economists are alarmed, arguing that the market cannot absorb such a massive bond supply without manipulation.
“It’s obvious the market couldn’t buy that volume, and this was just more proof of the rigging—the bonds were formally sold to banks, which immediately re-borrowed from the Central Bank,” says Vladislav Inozemtsev.
Right now, the U.S. dollar trades at around 80 rubles on the cash market, and it could climb above 90 rubles by year-end, with a potential to hit 100 rubles. Inozemtsev also forecasts official inflation at 5.6% in 2025, rising to 12-13% by 2027. Real-world inflation for households is expected to exceed 15% this year and 20% next year.
This hidden bond-based money creation is already having severe consequences for Russia’s economy, including accelerating inflation and a weakening national currency. Roughly 70% of funding for Russia’s military-industrial complex and war efforts comes from oil and gas revenues, further straining the economic outlook. These developments point to serious challenges ahead, such as rising consumer prices and currency market instability.
As the Russian government grapples with its budget shortfall, the implications of this covert money printing scheme are becoming increasingly evident. The escalating budget deficit, which has now reached $83 billion, underscores the mounting economic strain on the nation. For a deeper understanding of how these financial maneuvers are affecting Russia's fiscal landscape, you can read more about the current budget challenges in this related article.