Exchange of goods was a kind of trade used in different communities across the globe before the introduction of money. It basically involved taking from another person an item or items that you need and giving the person the item(s) that he/she needs.
Although this form of trade is no longer practiced today, it has not been totally eliminated. In traditional societies; the exchange of goods is done on an informal basis. But in the modern society, the system is more organized and it occurs in most cases in trade relationship among countries.
How it works?
Bilateral or multinational trade without the use of money is often undertaken between countries. It has been shown that there is mutual benefit in exchanging goods and services between countries without using money as an exchange medium. The trading system also benefits countries with minimal foreign exchange as they can still obtain goods or services by simply giving away some of their produce in exchange.
The modern form of trade by exchange without money is normally undertaken through a commercial entity that provides the platform on which goods and services are exchanged. Countries or companies that wish to engage in the exchange are obligated to create a trading account and leave the responsibility of bookkeeping to the commercial entity managing the trading platform. Instead of using money, companies involved in this form of trade make use of trade credits that are deposited in a company’s trading account.
This form of trade has indeed benefited many companies across the globe. The system is not only effective in increasing sales for companies involved; it also helps to reduce the movement of cash from one place to another. Furthermore, this system of trade makes it very easy for a company to move its inventory.
Implications of Trade by Exchange
Just like any other form of trade, exchange of goods and services without the use of cash has its implications. Interestingly, implications of this form of trade are all positive. First, exchange of goods and services in such a manner greatly reduces the manufacturing and distribution cost. Besides, this form of trade is promoted as an environmentally friendly trade that eliminates waste and encourages recycling.
Although this form of trade can be beneficial, it has some limitations. For it to succeed each of the parties must have what the other party needs but does not have. There is also the absence of a common measure of value of goods or services traded. Another limitation associated with barter services is lack of standardization in the measure of goods traded.
Most importantly, this form of trade does not make it easy to store wealth. Indeed, societies that rely on perishable goods find it completely impossible to store the goods for future use. This is probably why most traders trade in durable goods.
Trade by exchange is a veritable means of commerce. It has many benefits to offer even in the modern society even though it is not widely used today. It is still used in one way or the other.