Question

What was standard of deferred payment a problem for Barter System of Exchange?

Answer 1

Under the barter system, the lack of a standard of deferred payment made future transactions, loan repayments, and long-term contracts incredibly risky and difficult to execute.

1. Perishability and quality degradation: Goods like grain or livestock degrade or alter in physical condition over time, making it practically impossible for a borrower to return an item of the same quality years later without raising a dispute.
2. Extreme Price and Value Volatility: Commodities suffer significant value volatility since their market value is heavily reliant on seasonal weather and crop harvests; a single supply shock could crash or skyrocket the value of the repayment commodity, unfairly penalising either the lender or the borrower.
3. Lack of a Universally Agreed Medium: There was no commonly used medium for long-term agreements, thus parties could rarely agree on a single, stable physical good that they both trusted to maintain purchasing power in the future, therefore paralysing credit and banking growth.