Barter System is that system in which goods are exchanged for goods. In ancient times when money was not invented trade as a whole was on barter system. This was possible only in a simple economy but after the development of economy, direct exchange of goods without the use of money, was not without defects.
The important features of barter system are as under:
- Barter system is direct exchange of goods and services.
- It requires the double coincidence of wants.
- Barter system eliminates the use of money.
- It generally flourishes among uncivilized and backward communities.
- It is possible only if the wants of members of a community are very limited.
- Barter system is possible where the area of exchange is limited.
- It is possible where the ratio of exchange between two commodities are determined.
- It is now used in the modern foreign trade because of having good impact on balance of payment of trading countries.
