Does Growing World Barter Trade Suggests Of Bigger Cracks In Today's Monetary Order?

One possible sign of the accumulating distress from today’s monetary disorder is that trades are being conducted in the form of Barter, as previously discussed in Signs of Transitioning Financial Order? The Emergence of Barter and Bilateral Based Currency Based Trading?

This new development from the Financial Times (bold emphasis mine),

``In a striking example of how the global financial crisis and high food prices have strained the finances of poor and middle-income nations, countries including Russia, Malaysia, Vietnam and Morocco say they have signed or are discussing inter-government and barter deals to import commodities from rice to vegetable oil.

``The revival of these trade practices, used rarely in the last 20 years and usually by nations subject to international embargoes and the old communist bloc, is a result of the countries’ failure to secure trade financing as bank lending has dried up.

``The countries have not disclosed the value of any deals, and some have refused even to confirm their existence. Officials estimated that they ranged from $5m for smaller contracts to more than $500m for the biggest.”

The article mentions barter as ‘rarely’ used trade practice. Barter is actually a primitive form of direct exchange which culminated with the emergence of money.

According to Murray Rothbard in “Money: Its Importance, Origins, and Operations” from the Mystery of Banking,`` Before coinage, there was barter. Goods were produced by those who were good at it, and their surpluses were exchanged for the products of others. Every product had its barter price in terms of all other products, and every person gained by exchanging something he needed less for a product he needed more. The voluntary market economy became a latticework of mutually beneficial exchanges.”

But problems accompanied barter as a means of exchange, namely:

1. Double Coincidence of Wants-difficulty of matching specific wants

2. Indivisibilities-the problem of precise adjustments and exchange of supplies

3. Business calculation-determining profit or losses

Thus adds Mr. Rothbard, ``Barter, therefore, could not possibly manage an advanced or modern industrial economy. Barter could not succeed beyond the needs of a primitive village.”

``But man is ingenious. He managed to find a way to overcome these obstacles and transcend the limiting system of barter. Trying to overcome the limitations of barter, he arrived, step by step, at one of man's most ingenious, important and productive inventions: money.

So if barter is a primitive way of conducting trade without money, why do nations today embark on such activities? The article says “failure to secure trade financing as bank lending has dried up”. This means the gridlock in the banking sector has impaired the facility of exchange, particularly in the payments and settlements functions.

Thus, temporarily nations have resorted to direct exchange. One must be reminded that most of the problems of credit paralysis have been centered on the US banking industry, which essentially operates as the main conduit for the US dollar standard. This implies that prolonged disutility of credit from the present system could lead nations to adopt an alternative “medium of exchange”.

So aside from the prospects of massive inflation, a persistent dysfunctional banking system could risk jeopardizing the role of the US dollar as international reserve currency.