Barter Economy may be regarded as the mother of all economic concepts prevalent today. It is the most primitive and very basic economic theory, which does not consider currency as a medium of exchange. Rather, commodities and services are considered to be the means of all exchanges, as money was unknown to man in ancient times.
In fact, Barter Economy had given birth to a kind of trade called “Barter”, which are both bilateral and multilateral in nature. Triangular Trade is a familiar instance of multilateral Barter trade.
As a matter of fact, the two concepts of ‘currency’ and ‘barter’ do not match with each other. Barter Economy can exist in society where the concept of money is totally unknown. Or it may as well prevail in countries suffering from severe financial instabilities, owing to hyperinflations.
Barter Economy had a long history of evolution. It was introduced in the pre-historic times for the systemization of the production and distribution of commodities and services among the existing population. In recent times, this age-old economic concept is widely prevalent among pre-market and pre-capitalist economies. A deep sense of reciprocation, together with substitution of the redistribution for market exchange characterizes Barter Economy currently.
Commercial activities in a Barter Economy are restricted mainly between two nations or business communities. The benefit of this economy is felt mostly in times when the existing financial system of a country remains unsuccessful in assessing the economic worth of various commodities. As a matter of fact, Barter Economy best serves a nation during hours of financial emergencies.
Barter Economy is popular at the time of significant commercial dealings between countries or companies on exchange of goods, where financial limitations affect the smooth operation of such activities.
There are several disadvantages of the barter economy. Firstly, there has to be double coincidence of wants for exchange to take place. Again the problem of indivisibility of commodities comes in the matter of exchange. Basically such disadvantages and many more called for the emergence of money. Money is used as a common medium of exchange and store of value.
1) Indonesian Finance Minister Bambang Brodjonegoro said the government will probably raise subsidized fuel prices before year-end
2) Dilma Rousseff was re-elected as President of Brazil
3) Brazil’s central bank delivered a hawkish surprise too on Wednesday, hiking rates by 25 bp to 11.25%
4) Protests continue to spread in Hungary
Chancellor of the Exchequer of the United Kingdom from 1992 to 2007. Prime Minister of the UK between 2007 and 2010. Inaugural 'Distinguished Leader in Residence' at New York University. Advisor at World Economic Forum
QFINANCE is a unique collaboration of more than 300 of the world’s leading practitioners and visionaries in finance and financial management, covering key aspects of finance including risk and cash-flow management, operations, macro issues, regulation, auditing, and raising capital.
Vice President and Director of the Global Economy and Development Program at the Brookings Institution. Former Turkish Minister of State for Economic Affairs. Head of the United Nations Development Program (UNDP) from 2005-2009.