The limitations of barter exchange are as follows:
Lack of Double Coincidence of Wants: The barter system can only operate if both the buyer and the seller are willing to trade items. For example, only when A has what B
and B has what A wants, may A and B exchange things. However, such a rare occurrence is a double coincidence.
There is a lack of a common measure of value: All commodities are not of equal worth under the barter system, and there is no universal measure (unit) of the value of products and services in which exchange ratios may be stated. In the lack of a shared measure, the exchange rate is set at random, resulting in one of the parties suffering.
Lack of a Deferred Payment Standard: Contracts involving future payments or credit transactions are difficult to execute in the barter system for the following reasons:
At the time of repayment, the borrower may not be able to get products of comparable quality.
There may be disagreements on which commodity should be utilized to settle the debt. At the moment of repayment the reimbursed commodity may lose or gain value. As a result, making postponed payments in the form of commodities is extremely difficult.
Lack of a Store of Value: In a barter system, it is difficult for individuals to save money for future use because:
Most items (such as wheat, rice, and vegetables) are not durable, meaning their quality degrades with time.
Keeping products in storage takes time and effort.
Final Answer:
There were many issues with barter trading, and hence it could not be used for a long duration. As a result, money was invested.
The limitations of barter system are as follows:
Lack of Double Coincidence of Wants
There is a lack of a common measure of value
Lack of a Deferred Payment Standard
Lack of a Store of Value