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Financial repression forces banks and citizens to hold government debt on terms the market would never accept. Economists have called it distortionary for fifty years. It never went away.
Oleg Itskhoki and Dmitry Mukhin study what happens when a government runs out of options. Their paper traces how Russia deployed financial repression in 2022 to survive the largest sanctions package in postwar history. The ruble was in freefall; banning cash withdrawals and forcing exporters to hand over foreign currency revenues stopped the crisis. The measures worked because Russia kept earning export income, and the sanctions never closed that tap. But with government debt in advanced economies now at historic highs, financial repression is no longer confined to authoritarian regimes under siege. It is a path of least resistance for a government that would rather suppress the symptoms of unsustainable debt than carry out the fiscal reforms needed to fix it.
