What is Barter System and its Problems?

By Ritesh|Updated : December 20th, 2022

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. Learn more about this and the drawbacks of the barter system below.

Barter System and its Problems

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. 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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FAQs on Barter System and its Problems

  • A system of exchange of goods and services without the participation of money is called the Barter system. There are many defects in the Barter system as well such as it is not always possible that the two people have the requirement for each other’s products, so establishing mutual consent would be difficult.

  • Barter System is a traditional method of exchanging products and services with a mutual agreement without using money. It has many advantages and disadvantages as well. Some advantages are making a simple economy, no over-exploitation of resources, no employment, etc. In contrast, some disadvantages are a lack of double coincidence of wants, no common measure of value, etc.

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