barter(redirected from Barter (finance))
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barteran exchange mechanism for buying and selling goods and services which involves the physical ‘swapping’ of one product for another. Generally, barter is a cumbersome and inefficient means of organizing exchanges in an economy, since a large amount of time is wasted in seeking out and finding compatible ‘swap’ partners (i.e. each selling what the other wants to buy), and then haggling over an appropriate exchange rate (for example how many tomatoes equal a sewing machine?). All these difficulties can be overcome by the use of MONEY as a common denominator to conclude transactions and ‘price’ individual products.
For all its disadvantages, barter (or COUNTERTRADE as it is often referred to) is still widely used in the context of INTERNATIONAL TRADE. Firms which are unable to obtain the necessary foreign currencies they require to finance a trade deal (because the government operates FOREIGN EXCHANGE CONTROLS or because the country has simply run out of currencies due to a balance of payment deficit), often enter into a bilateral ‘swap’ deal with firms in other countries arranging a suitable product exchange.
barterthe EXCHANGE of one economic good or service for another. Barter as an exchange mechanism, however, suffers from a number of serious disadvantages:
- for barter to take place, there must be a ‘coincidence of wants’, that is, each party to the barter must be able to offer something that the other wants. For example, an apple-grower wishing to obtain oranges must not only find an orange-grower but must particularly find an orange-grower wishing to acquire apples. Finding appropriate exchange partners can involve lengthy search activity, which reduces the time available for actually producing goods;
- even if the parties meet up, they then have to agree on an appropriate ‘rate of exchange’, for example, how many apples are to be exchanged for one orange? Haggling over exchange terms is again time-consuming, and where agreement cannot be reached between the two parties each will then have to seek out new exchange partners.
Overall, barter is a very inefficient means of organizing transactions in an economy and has been largely superseded by the PRICE SYSTEM in modern economies, using money as a medium of exchange. See COUNTERTRADE, BLACK ECONOMY