What Is Barter System and its Definition – HowFlux

What Is Barter System and its Definition

What Is Barter System


Barter system refers to the trading of goods and services that was practiced in the past when there was no money introduced. The people used to exchange their goods and services so as to make transactions and there was no money involved in it. This system involved people to exchange their commodities in order to get the products from others in return irrespective of the value that the product used to have. Proofs have been found that barter system was practiced in past in India but somehow the concept of currency replaced it.

What Is Barter System

What Is Barter System

Essence of Old Period Barter System in India:-

Nearly 3000BC in Harappa culture, there used to be the exchange of goods that included agricultural products in the north India that was made on the basis of Barter system. The essence of it was simply the exchange of goods that was not made with money but with the exchange of goods that people produced. Later on when the coins got introduced and the kings started issuing coins of their names so as to make transactions, this concept met its end and this way the currencies came to existence.

Example Demonstrating Barter System:-

Suppose I am a farmer and I have got grains with me. You are a carpenter and you have got the wooden furniture with yourself. Now if I promise to give you some of my grains in exchange of furniture that you will make for me, it would come under the barter system. In past people used to make exchanges like this only.

Why The Old Barter System Met Its End In India:-

The example that I told you above must have put you in a jeopardy as grains cost quiet less than the wooden furniture and this was the only reason that barter system came to an end in India. The exchange followed the goods to be given in place of goods but the value of that product was never considered and thus there came the era of coins.

The coins in the Initial stage were made of metals like gold or silver etc. and people started melting them so as to make jewels and other stuff as the coin had much less value than the metal itself and thus even the concept of metal based coins failed and gave rise to the iron based or steel based coins and then to the paper based currency that we see today. Barter system was not fully eliminated within a single time, people still practiced exchange of goods but now it was focused on the value of products rather than the quantity.

Modern Day Barter System In World Markets:-

If I talk about the meaning of modern barter system, Like if a country promises to pay a certain country some gallons of petrol or crude oil in exchange of gold from that country, It would be said to follow the barter system as there is no money involved in between but only the goods are getting exchanged. The act of making trade between two parties this way without involvement of money amongst them can be regarded as modern day barter system this way.


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