What is BARTER?
Barter is when one party directly trades goods or services with the other party. What do I mean by directly? Well, lets say for example there are two neighbors. Neighbor 1 and Neighbor 2. Neighbor 1 wants his door fixed while Neighbor 2 wants his car washed. If they do the trade through paper money, the scenario will look like this: Neighbor 1 would pay Neighbor 2 to fix his door, while Neighbor 2 will Neighbor 1 to wash his car.
If they do it through barter the scene will look more as this: Neighbor 1 would wash Neighbor 2’s car in return for Neighbor 2 fixing his door.
This is Barter. When one person directly trades the other with goods or services.
The bad thing about barter is that if the other party doesn’t like what you are giving them then you can’t trade. If that happens you need to find another person who will give you what the other party needs for what you are giving him. This makes things complicated. Which is why people tried to find what all the others wanted.
How Paper Money came into place.
As I said people wanted to find what everyone wanted, and the answer was gold. Its rare because nature limits it to a certain extent every year so it is worth something and it makes trade easy. Gold is a commodity money which means that trade on a large extent will make the gold weigh so much it will be challenging to lift it. So how did some random person convince everyone that paper had value? This all started because of banks. Yes banks. They offered some space in banks to keep the citizen’s money. Each citizen who keeps it in there gets receipt. They can hand over the receipt and get their money back. The citizens started trading the receipts for goods and that’s how paper money came. There were a few problems, each city had a bank which meant that each city will have different notes. So if one person visits another city he will have to change his notes. So if that city he went to doesn’t have a branch of the bank which is nearer to them then the notes aren’t taken.
All the countrys had more or less the same solution. They made centrl bank for every country.
Subscribe to my post if you wish to see more posts like this!