Certificate Program in Payment Systems Domain Competency AcademyCompetency V 2.0Page 4 of 17
“There are no free lunches in this world “-
An old Economics adage
We homo-sapiens are essentially consumers, everyday we consume either goods in theform of food, clothes, soaps, detergents, etc. or services (also be termed as intangiblegoods) in the form of banking services, medical & healthcare services, entertainmentservices etc. However, goods and services do not come for free and we have to pay forthem. In the manufacturing and delivery of goods & services, producers do incur somecost , which need to be paid for by the consumers of such goods and services.In ancient times long before the usage of money as a medium of exchange the “BarterSystem” existed. In that system, goods were exchanged for other goods or services. ..Barter system is referred to as a trade system in societies that donot have any monetarysystem.Barter system solely relied on the coincidence and reciprocity of need. Forexample:
If a person X has 3 cows and wants to trade one out of three with a pair of mules, he would have to wait until some person Y turns up with the exactly reciprocalneed.
If the same person X has free bushel of grains and wants a person who canmend his house roof, then again he has to wait until somebody turns up withthe exact reciprocal need.
Also, if a person X has to exchange one commodity for another, say, cotton forwheat, he can never have an exact value in cotton in terms of wheat, it alldepends on the needs and wishes of the person involved and not on the valuethe commodity is holding. So it creates a fallacy in the system.Problems associated with the barter system were:
No proper method of valuation of goods
- As there were innumerous goodsand each can’t be valued against the others justifiably.
Information and Time delays
– A full fledged market place with a single modeof exchange wasn’t available, and hence people generally get delayedinformation.
Dissatisfaction amongst the exchangers (parties)
- As one person’s estimateof the value of certain good may not be acceptable to another and they wouldhave to compromise eventually as per the urgency of transaction.
Difficulty in coincidence of wants:
The goods or services in possession of twoparties must be useful and needed by each other.