barter system - Definition, What is barter system, Advantages of barter system, and Latest News - ClearTax (2024)

Introduction to the barter system

• A barter system is known as an old method of exchange. This system has been practised for centuries and long before money was introduced. People started exchanging services and goods for other services and goods in return.
• Today, bartering has made a considerable comeback using more sophisticated techniques to aid in trading, for instance, the Internet.
• In ancient times, this involved system people in the same area; however, today bartering is global. The value of bartering items is negotiable with the other party.

Uses Of Bartering

• Bartering is usually conducted directly between two parties; however, it may be done multilaterally through a trade exchange. Developed countries typically don’t engage in barters unless they’re done in association with the standard monetary system of your country, and even then, it is only practised in rare instances.
• In times of monetary crisis, a barter system is often established as a means to maintain the trading of goods and services as well as to hold a country functioning. This may occur if physical money is not available or if a country sees hyperinflation or a deflationary spiral.

Advantages And Disadvantages Of The Barter System

Advantages

• There are many reasons why a barter economy or being able to barter is helpful.
• There may be circ*mstances where cash is not available, but goods or services are.
• Bartering enables people to get what they need with what they already have. For example, if an individual needs lumber to set an addition onto their home but lack funds to purchase the lumber, then they may be able to apply the barter system to supply their requirements – for example, exchanging furniture they don’t need for the needed lumber.
• Such a deal, of course, has to be negotiated by both parties. It is a reciprocal, mutually beneficial arrangement that doesn’t require the exchange of cash or another monetary medium.

Disadvantages

• The difficulty with the barter system is its inefficiency. The first potential problem is the person who needs lumber may not be able to get a supplier of lumber who is in the need of some thing the lumber seeker can offer.
• The second potential problem comes with attempting to guarantee fair exchanges. A monetary economy helps in making the exchange of goods and services more efficiently manageable.