Monday, August 5, 2013

PAYMENTS SYSTEMS THROUGH THE AGES - I



Though electronic payment is a recent form of payment, imbursement in all is not a novel concept, it existed ever since the existence of mankind where man exchanged goods to acquire goods of his choice. This article will decipher the modes of payment that existed since ages.

Barter System:

'I'll give you 5 stone axes. You hunt for me a mammoth.'

The above line is a clear demonstration of bartering- A direct trade of goods and services. Bartering as a system clearly defines that Exchange is the only vital necessity in a transaction.

The simplest and oldest form of payment is barter, the exchange of one good or service for another. In the modern world, common means of payment by an individual include money, cheque, debit, credit, or bank transfer, and in trade such payments are frequently preceded by an invoice or result in a receipt. However, there are no arbitrary limits on the form a payment can take and thus in complex transactions between businesses, payments may take the form of stock or other more complicated arrangements.

In law, the payer is the party making a payment while the payee is the party receiving the payment.
As times progressed, slowly, a type of prehistoric currency involving easily traded goods like animal skins, salt and weapons developed over the centuries. These traded goods served as the medium of exchange even though the unit values were still negotiable. This system of barter and trade is spread across the world, and it still survives today on some parts of the globe.

Advantages:
  • It is a simple system free from the complex problems of the modern monetary system.
  • The problems of international trade, like foreign exchange crisis and adverse balance of payments, do not exist in the barter system.
  • Personal and natural resources are perfectly utilized to meet the requirements of the society without involving any wastage.

Disadvantages:
  • Absence of common measure value
  • Money plays an important role in a monetary economy thus being helpful in measuring their values against each other. This role might be absent in a barter economy.
  • Invisibility of certain goods
  • A barter transaction cannot occur if an individual wants to buy a certain amount of goods but only has single invisible unit of another good which is worth more than what the individual wants to obtain.
  • Lack of standards for deferred payments.

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