Barter is a system of exchange by which goods or services are directly exchanged for other goods or services without using a medium of exchange, such as money. It is distinguishable from gift economies in many ways; one of them is that the reciprocal exchange is immediate and not delayed in time. It is usually bilateral, but may be multilateral (i.e., mediated through barter organizations) and, in most developed countries, usually only exists parallel to monetary systems to a very limited extent. Barter, as a replacement for money as the method of exchange, is used in times of monetary crisis, such as when the currency may be either unstable or simply unavailable for conducting commerce.
Economists since Adam Smith, looking at archaic societies, have used the inefficiency of barter to explain the emergence of money, the economy, and hence the discipline of economics itself. However, ethnographic studies have shown no present or past society has used barter without any other medium of exchange or measurement, nor have anthropologists found evidence that money emerged from barter, instead finding that gift-giving (credit extended on a personal basis with an inter-personal balance maintained over the long term) was the most usual means of exchange of gifts and services.
Limitations:
Barter's limits are usually explained in terms of its inefficiencies in easing exchange in comparison to the functions of money:
Need for presence of double coincidence of wants
For barter to occur between two people, both would need to have what the other wants.
Absence of common measure of value
In a monetary economy, money plays the role of a measure of value of all goods, so their values can be measured against each other; this role may be absent in a barter economy.
Indivisibility of certain goods
If a person wants to buy a certain amount of another's goods, but only has for payment one indivisible unit of another good which is worth more than what the person wants to obtain, a barter transaction cannot occur.
Lack of standards for deferred payments
This is related to the absence of a common measure of value, although if the debt is denominated in units of the good that will eventually be used in payment, it is not a problem.
Difficulty in storing wealth
If a society relies exclusively on perishable goods, storing wealth for the future may be impractical. However, some barter economies rely on durable goods like pigs or cattle for this purpose.10
Advantages:
Direct barter doesn't require payment in money (when money is in short supply) hence will be utilized when there is little information about the credit worthiness of trade partners or there is a lack of trust.
The poor cannot afford to store their small supply of wealth in money, especially in situations where money devalues quickly.
Exchanges :
Modern barter and trade has evolved considerably to become an effective method of increasing sales, conserving cash, moving inventory, and making use of excess production capacity for businesses around the world. Businesses in a barter earn trade credits (instead of cash) that are deposited into their account. They then have the ability to purchase goods and services from other members utilizing their trade credits – they are not obligated to purchase from those whom they sold to, and vice versa. The exchange plays an important role because they provide the record-keeping, brokering expertise and monthly statements to each member. Commercial exchanges make money by charging a commission on each transaction either all on the buy side, all on the sell side, or a combination of both. Transaction fees typically run between 8 and 15%.
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