Barter System- barter
system is one of the oldest method of exchange that still being used in some
parts of the world. Barter system is a system under which goods and services
are exchanged for other goods and services without using money as a medium of
exchange. . An economy
based on barter exchange is called C.C. Economy, i.e., commodity for commodity
exchange economy, where commodities are exchanged for another commodities or we
can say that the person gives the excess commodity which he have and in return
getting the commodities he wants from the buyer. (Singh, n.d.)
of Barter system
Simplest System- Barter
system is considered to be the one of the simplest system of trade as it
involves the exchange of goods and services without facing any hurdles in
transaction. For example seller of shoe is looking for the wheat and wheat
seller wants shoes, so they can exchange their commodities without bothering
about the economy. (Parikh, 2017)
people are producing how much they require so there is no under production or
over production in the economy so no worries about inflation and deflation in
Issues of foreign exchange-
there is no issues about the foreign exchange and international trade as their
no discrimination about the holding of abundant money in hands of few people as
all people are expert in their profession and can exchange their goods with
No involvement of money- since
in barter system people directly exchange their commodities with other
commodities so there is no involvement of money in any case. People can
exchange at whatever value they want.
of barter system-
of double coincidence of wants- double coincidence of
wants is one of the major issue in barter system. Double coincidence of wants
occur when one person is ready to sell his goods and ready to buy but he have
look for the person who in return is ready to take his goods and ready to sell
his products. For example, the seller of shoe want to sell his shoes but in
return he wants wheat but the seller of wheat don’t want shoes so the
transaction cannot be held in them.
of common measure of value- another big issue with
barter system is of lack of common measure of value. We cannot determine the
value of goods and services in barter economy. For example if traders are ready
to trade with each other than biggest problem arises in what proportion they
exchange goods and services. (Parikh, 2017)
of Standard of Deferred Payment- it is difficult to make
deferred or future payments in barter system. For example a person buys wheat
from the trader in terms of loan and giving him promise of making future
payment in terms of wheat. Then the problem arises about the quality and value
of wheat which person has to give to the trader.
in storing wealth- It is difficult to store wealth under
barter system as the wheat seller cannot store wheat in warehouse for the
longer period of time and even it indulge huge expenses of trader for caring
goods and services to different places. Anyone wants to save real capital like
cattle, sheep, or food grains over a long period would be faced difficulty.
Barter system have been
used for centuries in the world and still being used in some parts of world
like China, Iran, Spain, Russia, North Korea, Mongolia, Japan and many others.
Now a days we don’t even trade things for other things. Everyone uses money.
But still barter system exist in our lives like giving cupcake to friend and in
return getting pickles from him., exchanging lunch boxes with friends.
In today’s world there is no need of barter
system and exchange of goods and services as nowadays most of the people are
having efficient money to buy whatever things they want for them. Therefore the
people are possibly able to purchase goods and services which is pushing back
In the modern era
where technology and innovations have changed the people’s lives so now no one
trust on barter system so they uses money as a common medium of exchange. Due
to its major disadvantages it creates problem for the people to held a smooth
transactions which ultimately forces people to develop new means of transaction
thus it leads to evolution of money.
EVOLUTION OF MONEY
With the end of barter system there’s came period of
evolution of money which brings the drastic change in the economy. Now people
started to used money as a common medium of exchange and no more rely on barter
system. The word Money is derived from Latin word “Monet”. Money was developed
to fulfill needs and requirements of the people with main aim of removing
barter system from the mind of people.
Stages of Evolution of Money-
Money- in the earlier period any commodity that was
demanded and required by the people was considered as a money. For example
Goods like furs, skins, salt, rice, wheat, utensils, weapons etc. were
used as a source of money. People directly satisfy their needs with exchanging
goods and services they want. This is called Barter system.
Money- with the passage of time the barter system shows
various difficulties in making transaction thus commodity money was related
with metallic money, where these metals were used as a medium of exchange.
These metals includes gold, silver, copper, etc. which have standard weight and
value. Thus, whenever people made transactions, the metal coins used as
payments were examined and weighed. (Chand, n.d.)
Money- it was huge risky step to carry gold and silver
always time, so it leads to the invention of paper money as a medium of
exchange and the Central Bank has the full control over the formation of paper
money. Paper money can be of three types :
Representative paper money- Something that
is not in the physical form of currency, but still used a form of money.
Convertible paper money- money which can
be converted into coins on demand.
Fiat paper money- which is not converted
into gold and silver on demand
4) Credit money- credit money is a money
that we claim from financial institution or from lenders in order to buy goods
and services. Cheques and drafts are the example of it. People make deposit in
the bank and take out money according to their requirement in form of cheques.
Plastic Money- the latest form of money that is being used in day to day
life is plastic money i.e. Debit and Credit card. It removes the fear of
carrying cash in the pocket. Transaction can easily be held with cards.
to my opinion evolution of money has brought drastic changes in human life as
now we can held transaction by sitting any corner of the world. Money has
fasten the process of economy and raised the lifestyle of the people. With the
evolution of money all the drawbacks that were faced in barter system has been
solved and it has brought more flexibility in the economy.