What is a barter system?

Barter system is a old and first payment method in which goods were exchanged for oaymy as no mode of currency was there. Paying for goods or services with other goods or services, instead of with money. It is often popular when the quality of money is low or uncertain, perhaps because of high inflation or counterfeiting, or when people are asset-rich but cash-poor, or when taxation or extortion by criminals is high.

Barter systems are different from most transactions which occur in our modern world because they never involve an exchange of money. Instead, we would probably characterise bartering today as ‘trading.’ In a barter system, for instance, instead of giving the cashier a set amount of paper and coin money for your groceries, you would give the cashier goods - your watch, your car keys - of equal value in return.

Bartering has its limitations, but it also has advantages. Honesty amongst traders in integral to a bartering system; participants must be assured of each other’s accurate valuation and description of their goods, or the bartering system will surely break down. However, bartering can also have positive aspects that a market or commodity economy does not, specifically when it comes to the valuation of an item. An item that is worthless to one barterer may be incredibly valuable to another, and therefore still able to give its owner a positive return on his or her investment.