Alternatives of Monetary System - Case Study Example

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This essay describes what are alternatives to which people have resorted to carry out exchange in countries where the monetary system has broken down. This does not mean that trade and other economic activities will seize to exist in the absence of money…
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Alternatives of Monetary System
Question 1: In countries where the monetary system has broken down, what are some alternatives to which people have resorted to carry out exchange?
Money provides an efficient medium of exchange. However, this does not mean that trade and other economic activities will seize to exist in the absence of money. In countries where monetary systems have broken down, people often invent new alternatives to keeps trade flowing. A prison environment provides a suitable scenario where trade flourishes in the absence of money. However, in a free country, people would have several options to substitute money. Batter trade would be the immediate substitute for money in such countries. In this system, people would exchange goods for others, without the need to have a medium of exchange. Such systems are vulnerable to inflation, since there are no clear regulations on supply of exchange commodities (McEachern, 2012). Furthermore, the system would be subject to “double coincident of wants” whereby buyers not only search for commodities that they want, but also people who are ready to accept their commodity.
Valuable commodities such as precious metals would also be used as a medium of exchange in countries with broken monetary systems. Communities in the affected countries can also designate certain products to replace money. Such products would be selected according to their portability and availability. Preferred commodities should be portable, scarce, and relatively durable. In the case of a prison environment, cigarettes were the preferred currency due to their scarcity and portability. Virtual money can also be used in place of local currency. In a world supported by technology, virtual money can provide a suitable medium of exchange if the system is administered by independent bodies (Bade, & Michael, 2002). Postage stamps can also be used as a currency since they have currency value printed on them. Thus, the choice for a medium of exchange would depend on the concerned society and the immediate economic/monetary needs.
Bade, R. & Michael, P. (2002). Foundations of Microeconomics. Boston, MA: Addison-Wesley
McEachern, W.A. (2012). ECON Macro 3 (3rd ed.). Mason, OH: South-Western Read More
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