Question

Explain how money is a better substitute to barter system as a standard of deferred payments?

Answer 1

Under barter system, there is a lack of standard of deferred payment, so credit transaction cannot take place smoothly. Credit transactions are often hampered because of the problems regarding the type, quality and the value of the goods to be exchanged in the future.

While in the money economy, it performs this function successfully because :

(i) Its value is relatively more stable than other commodities.

(ii) The element of durability is higher than other commodities. It possesses the quality of general acceptability. This function facilitates the borrowing and trading activities and helps in the creation of financial institution.