The kremlin Is Turning On the Money Printing Press to Fund the War

7/28/2026

The kremlin is increasingly financing the war through covert money issuance. Since the government of the rf can no longer raise the necessary funds on the market, it is forcing state-owned banks to buy up federal loan bonds, with the central bank providing the liquidity for this. Formally, this is a placement of OFZs, but in reality, it is the use of the banking system as a channel for creating new money.

The mechanism is simple: the ministry of finance of the rf issues debt securities, state-owned banks purchase them, and the central bank supports the process with additional resources. As a result, public debt becomes a tool for indirect money emission. The budget receives funds, but at the cost of the economy’s dependence on ruble printing and rising inflationary risks.

To this end, the ministry of finance of the rf registered two new issues of OFZ floaters: one worth $6.4 billion maturing in 2037 and another worth $12.8 billion maturing in 2042. As of July 1, russian banks already held $248.1 billion in government bonds, or about 9% of the banking sector’s assets. Since the beginning of the year, their portfolio has grown by another $6.5 billion.

The reason for this step is the rapid growth of the budget deficit. In the first half of 2026, it reached nearly $77 billion, with military spending remaining the main driver. Additional war-related expenditures could exceed the budget by another $51.3–64.1 billion, part of which the kremlin intends to cover with new borrowing. The central bank of the rf forecasts that the annual deficit could rise to $105.1 billion.

At the same time, the market is no longer willing to finance the russian budget on the government’s terms. Due to high interest rates and weak demand, the ministry of finance cannot raise the necessary funds at an acceptable cost. In June and July, the ministry canceled at least three auctions for the placement of OFZs due to investors’ demands for higher yields.

The shift to forcibly raising funds from state-owned banks does not resolve the deficit problem; it merely masks it. This model increases the budget’s dependence on the central bank, concentrates debt within the banking system, and intensifies inflationary pressure. In fact, the kremlin is increasingly financing the war through monetary issuance rather than market-based funds.