What is Barter System and its Problems?

By BYJU'S Exam Prep

Updated on: November 9th, 2023

The Barter system is defined as a system of exchange of goods and services without the participation of money. In other words, it is a transaction of giving and receiving a product. For example, if a farmer exchanges 5 kg of wheat for a pair of shoes, this system of exchanging products without the use of money is called the barter system of exchange.

Barter System Definition

A transaction system in which participants directly exchange goods or services for other goods or services without using a medium of exchange, such as money, is called a barter system. Barter systems generally exist parallel to monetary systems in most developed countries to a very limited extent.

Market experts use the barter system as a replacement for currency as a method of exchange in times of monetary crisis. It is a traditional way of mutually satisfying consumer needs. Even in the present times, many people follow this system informally to get the products they want.

Problems of the Barter System

There are many defects in the barter system, which are mentioned below:

  • Division of certain goods is not possible
  • Lack of double coincidence of wants
  • Lack of a common measure unit
  • Difficulty in storing wealth
  • Difficulty in making future payments
  • Lack of specialization

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