In this article, we cover a bit about countertrade. Today, money is a medium of exchange. It facilitates transactions as we exchange money for goods and services. To buy something today, we pay the amount in Dollars or in our domestic currency.
But, that wasn’t the same throughout human history. Currency or money didn’t exist back then. If someone wanted to buy a good or service then, they had to exchange it for another good or service of equivalent value. The system where money isn’t involved while trading goods and services is called a Barter System.
Barter is a type of countertrade.
What is Countertrade?
When we settle international trade through barter, it is called Countertrade. It is particularly useful if one’s country is undergoing a financial crisis. Overall, countertrade doesn’t involve money as a medium of exchange.
Types of Countertrade:
- Barter: The goods and services of equivalent value of purchased and sold in the spot trade.
- Counter Purchase: Here, the country that imports goods and services gets an assurance in the form of an agreement from the exporting country that they would buy goods from importing country. For instance, there is an agreement between Chile and Brazil that Chile imports Sugar from Brazil and Brazil purchases Copper from Chile within a specific time period.
What are the drawbacks of countertrade?
Trade, in almost all cases, would involve only two parties. They won’t add value to it and export the product to some other country. In general, trades are not settled in this manner today. It brings inefficiencies to the entire system.
Apart from that, we can’t get all of the products that we require through this system of trade. Those products that can’t be acquired have to be made locally. But, in the process, we lose a competitive advantage. The resources are underutilized.
In conclusion, money has become the dominant form of medium of exchange today. It acts as a store of value. And, can be accumulated easily for future transactions.
