The recent news that Chinese home builders nursing huge unsold stocks are accepting watermelons and wheat from farmers as part payment might have, at first blush, appeared a fairytale. But deep down, the atavistic instinct for barter never dies down despite national and international currencies taking roots.
Last year Tesla founder Elon Musk seriously considered accepting Bitcoins for electric cars but gave up when authorities started looking askance at the thought. And it was just as well; at that point in time Bitcoins were flying high commanding a price of US$ 50,000 apiece. All hell would have broken out when the Bitcoin’s downhill course started and slid below US$ 20,000. Auditors would have cried foul and tax authorities would have started quibbling over whether the resultant notional loss was business or speculative. El Salvador has given Bitcoin legal tender status but not the US. Assuming it had, a transactional, accounting, payment and taxational nightmare of unimaginable proportions would have come to haunt the nation. US government cannot simply be undermining its own currency by recognising a Johnny-come-lately charlatan currency. Such all-round chaos perhaps could have been avoided if Tesla were to sell the Bitcoins back-to-back fortuitously at the same valuation for which it sold its car ie, $50,000 per Bitcoin, but that was never on the cards. The intention was to pile up Bitcoin in the expectation of its relentless northward surge. It is good that good sense prevailed and Musk’s whims were not acted upon; the market and shareholders would have voted with their feet.
Would watermelon and wheat be less calamitous and chaotic? In China, a house is an aspirational product. Prospective in-laws look askance at prospective grooms who are, so to say, homeless! China's household debt touched over $10 trillion. And around 27% of bank loans in China are tied to real estate, reported a think tank, Policy Research Group (POREG). Hailed not long ago as the biggest job creator in China today it is reviled for ushering in the dreaded "Lehman moment", in a reference to the 2008 bankruptcy of Lehman Brothers, which was a trigger for the global financial crisis. More so, when the number of empty homes has crossed the 65 million mark (90 million according to some estimates) – enough to house the population of France. Given China’s deep and wide global linkages, any financial crisis there can drag the entire world into the morass. Lockdown has made things worse with demand for houses not picking up. Steep reduction in home loan interest hasn’t revived buyer interest substantially. Hence the builders in 3rd and 4th tier cities are clutching at straws and going for broke.
Though the glib assertion by the Chinese builders that their gesture is to help farmers market their produce doesn’t fool anyone, Chinese farmers in fact would be happy to get remunerative prices for their produce sans marketing and storage hassles.
In international trade, countertrade or barter works reasonably well. In fact, India has embraced it a number of times. Indo-Russian rupee trade is a case in point. Indo-Iranian trade is another. It was cleverly done to sidestep US sanctions against anyone paying Iran in greenbacks – we got crude oil from Iran and Iran bought garments, gemstones and other commodities from India from out of the credit balance earned through oil export. It is estimated that countertrade including offsets account for 15% to 20% of the world trade. It is perceived as developing nations’ rebellion against the US dollar’s undeserved dominance in international settlements and international reserve currency status. But you can hate the greenback but cannot ignore it, because willy-nilly it has to be used for valuation of goods and services of the two nations involved in the countertrade when their negotiators sit across the table to hammer out the nitty-gritty.
Having said that, no nation can afford to atavistically hurtle back to barter lock, stock and barrel. In international trade it works reasonably within governmental framework. The Chinese dalliance with watermelon too might work as a one-off expedient. But wholesale reversion to barter across the country is unthinkable. How would a goldsmith exchange a one-gram gold coin with a vegetable vendor unless he is shopping for his daughter’s marriage? How would a coal merchant haul the coal to a groceries shop and how would the latter warehouse the product, all of which he admittedly cannot use immediately for his household consumption? His staff may refuse to take coal as salary should he try to palm off the fuel down the line. Above all, who would arbiter the worth of their respective commodities to arrive at a satisfactory exchange ratio? How would accountants record the convoluted transactions? How would the finicky auditors express their opinion on the truth and fairness of the accounts when they are accounted not in one denomination ie, INR but in a slew of goods and services? Wholesale regression into barter would be confusion worst confounded.
The national currency, warts and all, is the greatest unifier and standard setter, and it is what facilitates transactions and payments by electronic means.
Despite the aura of cynicism surrounding barter, its adherents do spring up from time to time. Barter then can at best be an ad hoc solution to a particular problem rather than a permanent solution to the general problem of disaffection with fiat currencies. Today no currency of the world is truly underpinned by a valuable commodity beyond sovereign guarantee. To be sure, fiat currencies are far from perfect especially when mauled by rampaging inflation but they are at least standardised and guaranteed by sovereign governments though not capable of being exchanged for gold.
The author is a freelance columnist for various publications and writes on economics, business, legal, and taxation issues
