For example, if someone has garri and is in need of beans, he must locate somebody who has beans and is in need of garri. Trade by barter has many setbacks.
PROBLEMS OR DISADVANTAGES OF TRADE BY BARTER
- Problems of double coincidence of wants: This involves looking for someone who is need of what you have and at the same time has what you need. To do this amounts to a very serious problem.
- No fixed rate of exchange in trade by barter: There is the problem of exchange rate determination between two products. Different rates of exchange have to be determined to cover every transaction before it can take place, e.g. how much of garri will exchange for beans.
- Wastage of time and effort: Trade by Barter system leads to waste of time and energy because one has to search for somebody to exchange the goods with.
- Problems of indivisibility: Many goods cannot be divided into small convenient units because they are heavy and indivisible so it does not encourage divisibility.
- Problems created by bulkiness of some goods: Some of the goods to be exchanged are so bulky that one finds it difficult to carry them about.
- No room for deferred payment: In trade by barter, there is no room for deferred payment. One cannot collect certain goods and hope to pay another day. Barter requires immediate settlement.
- It discourages borrowing and lending: Borrowing and lending under trade by barter is practically impossible as there is no standard unit of measurement.
- It discourages large scale production: As a result of the difficulties in the system of exchange by barter, it therefore leads to people producing goods only for themselves and that of the immediate family. In other words, trade by barter encourages self sufficiency hence it limits specialization of labour.
- Difficulty in strong wealth: The barter system, unlike money, does not encourage storage of wealth. It is difficult to store wealth or value, especially where perishable goods like yams and fresh tomatoes are involved.