Chairman of the Mid Group Sahel Majali has a keen interest in economics and the economy. A barter economy differs from a currency-based economy in several fundamental ways. This article will explore the key differences, examining the pros and cons of both systems.
What Is a Bartering System?
Bartering involves trading a particular commodity or service for another without exchanging money. A barter economy is different from a monetary economy in a number of ways.
The most obvious difference is that the act is reciprocal and takes effect immediately. In a bartering transaction, each party receives the item or service they need, in an equivalent amount to what they have offered in exchange.
Bartering is usually performed directly between two parties, although it may be achieved multilaterally via a trade exchange. Bartering is uncommon in developed countries, unless conducted in conjunction with the national monetary system – and even then, bartering is rare.
Bartering can be useful in times of monetary collapse or crisis. Find out more by watching the attached video.
What Are the Benefits of a Bartering System?
In times where currency is not readily available, bartering enables the people – and ultimately, the country – to keep functioning. There are instances where cash may not be readily available, but commodities and services are.
In addition, bartering enables individuals to get what they need in exchange for something they already own.
Bartering is reciprocal, with both parties willingly entering into an arrangement that benefits them both.
What Are the Disadvantages of a Bartering System?
One of the key drawbacks of the bartering system is the issue of supply and demand. A person seeking a particular commodity must have something that the supplier wants for the transaction to proceed.
Another disadvantage of the bartering systems is the issue of fair exchanges. How does one calculate a fair number of apples to exchange for a pair of shoes? A monetary economy promotes manageability and transparency in the exchange of services and goods.
What Is a Currency System?
A currency system uses money as a medium of exchange, circulating banknotes and coins. Currencies are recognised units of value that are traded between countries on foreign exchange markets.
Humans have been using currency for thousands of years. Find out more by viewing the attached PDF.
What Are the Benefits of a Currency System?
Currency is a nationally accepted unit of value. Not everyone may want or need a tonne of cocoa beans, but everyone can use money.
Currency promotes uniformity in pricing. Monetary transactions can happen more quickly, since sellers do not need to seek out buyers with a specific item they want. Money is a universal store of value that everyone can use.
The small size of banknotes and coins make them relatively easy to transport. Money is made to last a long time, which is not true of all commodities. A seller who relies on direct trade may only have a few weeks before their assets spoil, whereas money lasts indefinitely. It can be stored and used later.
What Are the Disadvantages of a Currency System?
Currency is often of no value outside the country of issue. Paper money is prone to physical damage and all money can be lost.
It can also be vulnerable to fluctuations in the market, such as the over-issue of notes creating inflation. This has occurred in various countries around the world, including China, Russia, and Germany, causing massive disruptions in trade. An absence of trade can ultimately cause suffering in society, preventing citizens from accessing essential services (like healthcare) and commodities (like food) that they need to survive.
For a summary of the pros and cons of both bartering and currency systems, view the attached infographic.