What is a barter system? What are its drawbacks?
Barter system is a system in which goods are exchange for goods. Suppose I have 1 kg of rice and I need 2 metres of cloth then I first need to find a person who will exchange the rice available with me with cloth. The major drawback of barter system is this double coincidence. The other drawbacks are – lack of common unit of value, store of value, and standard of deferred payments
These other disadvantages of barter system are being discussed below -
a) Lack of Common Measure of Value - The absence of a common unit of measurement to evaluate the goods for exchange makes proper accounting impossible.
b) Lack of Store of Value - In barter system it was not possible to store things for future because many of the goods are perishable in nature.
c) Lack of standard for deferred payments - In barter system it was not possible to make future payments or contractual payments.