In countries where the monetary system has broken down, what are some alternatives to which people have resorted to exchange?

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kipling2448 | (Level 3) Educator Emeritus

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Monetary systems have been around for thousands of years, but even ancient monetary systems were preceded by the age-old process of bartering goods and services.  When discussing the history of money and of monetary systems, it is good to keep in mind that most of today’s national currencies are simply paper and cheap metals (in the case of coins) that don’t have any value in terms of the materials from which they are made.  Rather, their value accrues from what they represent, and that can mean gold, silver, platinum, or something as nebulous as the reputation of the governments from which they emanate.  Monetary systems were developed for the purpose of facilitating commercial transactions within and across borders without the need for physically transporting precious metals and jewels the volume of which exceeded most businesses and governments’ ability to transfer, especially with the risks associated with physically moving such items, for example, theft and loss at sea.  In short, monetary systems are artificial constructs designed to make life easier, just as the invention of the credit card with a magnetized strip made possible day-to-day transactions without the need for even paper money, let alone precious jewels.  At a national level in particular, the development of monetary systems made possible the management of economies the scale of which make the ancient system of bartering highly impractical.

Absent a functioning monetary system, and even in cases where such systems exist but interaction with which individuals or groups hope to abstain because of the illegal or covert nature of the transactions in question, the old system of bartering is generally revived.  Trading goods or services, whether livestock, people (as in slavery), oil, gold, manual labor (‘you repair my leaking toilet in exchange for my preparing your taxes’) or anything else to which someone ascribes value is bartering, and it has been around since homo sapiens first began trading.  In the former Soviet Union, where the monetary system, such as it was under the control of the ruling Communist Party, shortages of goods was common and millions of citizens resorted to bartering among themselves as a more efficient method of attaining scarce goods.  As one source relates, rural areas of Southeast Asia resorted to barter systems during the financial crisis of the late 1990s [See “The Barter Economy Returns,” https://www.mint.com/blog/trends/the-barter-economy-returns/].   A February 2013 article in USA Today similarly described the adoption of bartering in areas of Spain in response to the financial crisis of 2008-2009:

“Trading produce for other services and merchandise is one of the many unconventional ways the Spanish are making ends meet in what has been described as the new "sharing economy" that has developed here since the economic crisis hit more than four years ago.” [“In Hard-Hit Spain, Bartering Becomes Way of Getting By,” February 20, 2013, http://www.usatoday.com/story/news/world/2013/02/20/spanish-bartering/1894365/]

Whenever confidence in a government’s ability to function declines to the extent it has in countries like Venezuela, Iraq, Afghanistan, and many other impoverished or dysfunctional countries, bartering returns.  Oil-rich Venezuela’s economy was driven into the ground by the late socialist president Hugo Chavez, with many Venezuelans responding to their lack of faith in the competency and integrity of their government by eschewing the formal monetary system [“Venezuela Tests Chavez Socialism at Barter Market,” http://www.reuters.com/article/2007/11/29/us-venezuela-referendum-barter-idUSN2921390820071129].  In Afghanistan, economically destitute fathers barter their daughters in exchange for relief from crippling debts [“In Afghanistan, Fathers Barter Daughters to Settle Drug Debts,” The Atlantic, July 21, 2013, http://www.theatlantic.com/international/archive/2013/07/in-afghanistan-fathers-barter-daughters-to-settle-drug-debts/278217/].  In South Asia and the Middle East, an ancient system called hawala continues to exist whereby individuals in one country send money to individuals in another, generally far-away country through a complex network of brokers.  While most of the business conducted through hawalas is legitimate in terms of an absence of criminal intent, terrorist organizations like al Qaeda have been known to use this form of transferring value across borders because it leaves no trail for law enforcement and intelligence agencies to track.  Had those transactions been processed through the formal, legitimate financial services industry, officials of the banks or wire transfer services involved would have to file reports with their governments. 

In conclusion, whenever monetary systems break down, or whenever confidence in the integrity and/or competency of governments erodes, people resort to bartering goods and services.  There is something tangible to many people around the world about trading in goods and services that is absent when paper money is used.

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