Barter system is an economic system based on the exchange of goods or services for other goods or services without the use of money. Barter appeared in primitive times, when man was self-sufficient, and there was no need for money. Barter contributed to the development of human societies, but it became insufficient to keep pace with the development of civilization. The disadvantages of the barter system led to the emergence of money, which replaced barter in most societies.
Barter has several characteristics, including:
- Instant exchange: The exchange of goods or services is not delayed, as the exchange takes place simultaneously.
- Bilateral exchange: An exchange usually takes place between two people only, but an exchange can take place between several people.
- Limited exchange: In most developed countries, barter is only paralleled by monetary systems to a very limited extent.
- Barter emerged as an alternative to money in times of financial crises, when the currency becomes unstable.
Disadvantages of barter system:
- Difficulty in finding a single measure of exchange: It can be difficult to determine the value of goods or services against each other.
- Incompatibility of desires of buyer and seller simultaneously: The seller and buyer may not want to exchange goods or services with each other at the same time.
- Difficulty in providing a valid means of storing value: The goods or services being traded may not be suitable for storing value.
- Difficulty in fragmenting some goods: Some goods may be difficult to fragment, making it difficult to exchange them.
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