Russian mercenaries killed in Ukraine are inadvertently helping stoke a new cash boom at home in an unusual side effect of the war.

Money paid in compensation for their deaths - which adds up to $60,000 per person, on top of any uncollected wages - usually comes stuffed in bags, according to several women who had to travel to pickup points around the country and requested that only their first names be used to speak openly.

Many are being told to avoid depositing the cash at a bank. Oksana from Chelyabinsk in the Urals region, whose husband died fighting for the Wagner paramilitary group in Bakhmut, needed no instructions, saying she wanted no "problems" with the tax system and lacked any documents stating where the money came from.

"Wagner paid everything it was supposed to," she said. "We already bought an apartment."

Financing for foot soldiers hired by Wagner, which the U.S. estimates had 50,000 personnel fighting in Ukraine, has turned on the spigot of cash that's become one of several sources of paper money oozing through the Russian economy. The volume of rubles is a stark example of the distortions caused by the war that's now in its 16th month.

The amount of currency in circulation has soared at a record pace since September, when President Vladimir Putin announced Russia's first mobilization since World War II, resulting in 2.2 trillion rubles in cumulative excess cash outflows from banks, according to Bloomberg Economics.

Given the restrictions imposed on bank transactions, the use of paper money is becoming more widespread to settle external trade while also extending into occupied parts of Ukraine, where Russia is imposing its own currency as other payment options remain limited.

Headed by Yevgeny Prigozhin, a sanctioned Russian businessman linked to Putin, Wagner deployed to Ukraine as early as March last year and eventually bolstered its ranks by recruiting convicts from Russian prisons.

Prigozhin hasn't tried to hide how his forces get paid. In an audio comment published this month by his Concorde company, he said fighters "get all the money in black cash."

"People from penal colonies went to war so that the people of the Russian Federation could sit at home by the stoves and warm themselves," he said. "And they died for this black cash."

Though the sources of Wagner's funding aren't clear, its involvement has meant that even more outlays on the war flow off the books.

Putin has pledged unlimited spending on the war effort, while the government has classified an unprecedented share of state expenditure. Responsibility for overseeing the system of cash circulation lies with central bank Deputy Governor Sergey Belov, a military officer who's also in charge of special institutions that channel funding from the state budget to frontline troops.

In response to a request for comment, the Bank of Russia pointed to several likely reasons for what it called "elevated demand" for cash since the final quarter of last year.

Among the factors is "possible additional" demand for paper money in Russia's "new regions," it said, referring to parts of eastern and southern Ukraine annexed by Putin last September. The central bank also cited the role of public-sector payments that people tend to withdraw partly in cash and the needs of tourists during the May holiday season in Russia.

Money earmarked for the military, including regular troops, is a major reason cash is increasingly becoming the medium of choice, according to officials familiar with the Russian authorities' thinking. Tax avoidance is unlikely to play an important role, they said, requesting anonymity to speak openly.

Unlike the 1990s, when employers paid wages in cash to dodge taxes, the mentality now is different, according to Oleg Vyugin, a former top central bank and Finance Ministry official.

"Taxes have stayed at the same level that's acceptable to people and businesses," Vyugin said. What's changed is that "there's now another source of demand for cash, linked to the special military operation," he said, using the Kremlin's preferred term for the war.

Russians hauled cash out of banks in then-record amounts in February 2022, a month that culminated in Putin's decision to invade Ukraine. But the frenzy proved short-lived, as the Bank of Russia drew funds back into the financial system with an emergency hike to interest rates that helped restore confidence.

The dynamics this time couldn't be more different.

Currency in circulation has recorded 10 months of almost uninterrupted growth that took it around 1.4 trillion rubles past the peak reached in March 2022, according to central bank data. It's a timeframe that aligns with the Kremlin's call-up and the assault often led by Wagner on the eastern Ukrainian city of Bakhmut - the longest and bloodiest battle of the war so far.

Besides offering an early release for criminals who survived a six-month stint fighting at the front, Wagner mercenaries also get payouts that include bonuses and a monthly wage of 240,000 rubles.

While the government hasn't been regularly disclosing Russian casualties, Prigozhin said after the seizure of Bakhmut that Wagner had 20,000 troops killed in what he's called a "meat grinder." Losses on that scale would have meant a cash payout of 100 billion rubles in death compensation alone.

Founded by Prigozhin in May 2014, Wagner has a murky legal status in Russia. Russia's Defense Ministry has set a July 1 deadline for all volunteer units to sign a formal contract with the military - an order so far bluntly rejected by Prigozhin.

Operating for years on battlefields from the Middle East to Africa, Wagner had to cover its financial tracks long before the U.S. designated it a transnational criminal organization earlier this year.

Since Wagner isn't a tax resident of Russia, it's always conducted business in cash while receiving funding from the government budget, according to Marat Gabidullin, who was a field commander at a militia in Syria linked with the Wagner group and worked with Prigozhin for four years, including a stint in his St. Petersburg office until 2019.

Contracts are signed with another company owned by Prigozhin, and cash is delivered several times a month by car to a Wagner base in southern Russia, Gabidullin said from France.

"All disbursements, bonuses, funeral payouts and others have always been made only in cash, in envelopes - both then and now," he said.

The cash economy that's taking shape is emblematic of the changes in Russia, whose banks before the war were among Europe's leaders in providing digital services. Now, large swaths of the economy are having to operate by stealth.

"The increase in cash reflects an assessment of business risks and uncertainty in the economy," said Sergey Dubinin, Russia's central bank governor from 1995 to 1998. "That's the main factor."