Barter Networks as an Alternative to CBDCs, by Mr. Alaska

My wife and I have bartered our business talents for products and services over many years. Some have been bilateral exchanges with a single party. Others were through a barter network of many people. A sample of products we received in trade include an old 4-wheel drive truck, a new .338 Weatherby rifle, a kayak, 6 solar panels (and the associated expensive mounting frame), and $1,500 worth of meals at a favorite Mexican restaurant. We have also traded services for stock in a number of small companies. On informal bases, we trade goods with friends and neighbors, such as our honey for horseradish plants or our raspberry canes for flowering bushes.

A final example is that we have invited people to our remote home in Alaska who want a “workcation” in which they provide several hours a day of labor. Instead of paying them in cash, we teach skills of their interest (such as beekeeping and foraging), host them in our guest cabin, and provide round-trip transportation from a nearby city in our float plane.

Because so many post-apocalyptic books extol the virtues of barter, and because many people are currently concerned about the implications of the planned introduction of digital currency, I thought I would outline some advantages and disadvantages of bartering between companies or individuals, whether through larger barter networks or simple bilateral trades, based on our actual experience.

Barter is an ancient practice of trading goods or services without the exchange of currency. Some trading is occasional and informal – excess zucchini for excess berries. In other cases, more formal barter networks have evolved as third-party platforms to connect a larger number of businesses and individuals who want to exchange goods and services. In a bilateral trade, Mary and Tom exchange things of value. The advantage of a barter network is more people and products/services. Mary can offer something to Tom who does not want anything from Mary but offers something to Ann, who trades with Mary.

For example, one network allows participants to value their offerings in points. This is similar to a price in dollars. A haircut might “cost” 20 points. Mary, a barber, is credited with 20 points when she cuts Tom’s hair. He is debited by 20 points. He babysits for Ann and earns 15 points. Ann makes marketing posters for Mary for 30 points. This system works best in a small community where people know and trust each other. The program can determine a maximum number of debit points or the duration of debit points at which to suspend a person’s trading rights.

Most of our barter deals were bilateral, but through a barter network, my wife provided business writing services worth $1,500. The only thing on the trading network she valued was meals at a favored Mexican restaurant that accepted credits from that exchange. She paid the bill with chits from the network and paid the tips in cash.

One of the main advantages of any barter is that it is cost-effective. Businesses may have excess inventory and a commensurate shortage of cash because they bought too much. They can trade some of it at full retail value for something they need without paying cash and without marking down the price of their products. Maybe they barter for advertising, supplies, or even employees who will work for less if they get “free” X, Y, or Z.

Flexibility can be an advantage or a disadvantage. Sometimes, parties can negotiate the terms and timing of the trade to better suit their needs. Other times, cash is much more negotiable.

By its very nature, barter incorporates networking opportunities, especially in barter networks. “Oh, I know someone who would value what you are offering.” By trading goods and services and referring others, participants can potentially reach a broader audience, including new customers, vendors, referrals, or new friends and neighbors. Trading with other businesses nurtures new relationships, perhaps even collaboration. “I can do this for you. Can you do this for me or do you know someone who can?” The relationship is between giver and giver, not giver and taker. This can lead to increased opportunities for growth and innovation.

On the other hand, there are also some disadvantages to barter, compared to the easy ubiquity of currency. Two obvious drawbacks are the limited availability of goods and services and a mismatch between what you want to acquire and what that source wants from you. Since businesses and individuals can only trade goods and services that they have to offer, there may be a limited selection of items. One aspect is geography. Obviously, I cannot trade berry bushes for citrus trees here in Alaska. Another aspect is timing. I cannot trade fresh produce in February. In these respects, bartering may have some of the same limitations of solar and wind power (which we have). They all work… but not consistently in all locations and times. Some places and times of year are more likely to have a broader array of goods and services than others.

Another disadvantage of barter is the challenge of valuations. Since bartering involves trading goods and services of equal value, businesses may have difficulty determining the fair value of what they have to offer vs. what they want. This can make it challenging to negotiate trades that are mutually beneficial. In this regard, the point system of the barter network above is helpful because the “price” is known upfront. A participant can still negotiate, but there is a starting point for both parties.

Participating in barter can also create additional administrative work to track the trades, especially if they are asynchronous. For example, you may deliver your part of the bargain in the fall, in anticipation of their part of the bargain in spring. Or in a network, credits and debits among participants need to be tracked to be fair to all.

Another potential problem is quality control. Parties may not be able to inspect the goods and services before committing to taking them. This is true for used and agricultural items as well as services. We had no idea how long that truck would last when we took it, but thankfully, it has performed well for more than a decade, now with 230,000 miles on the odometer! In a network, referrals, recommendations, and number of trades can endorse trustworthy participants.

Two final points: When businesses and individuals participate in barter, they may not have the same legal protections as they would when conducting business transactions using money. In addition, they may be held accountable for the trade as a cash equivalent and have to report it to the IRS. It is important to realize that a gift (unilateral) is regarded very differently than barter (bilateral) by taxing officials.

In conclusion, barter is a wonderful, long-standing alternative to cash, for both individuals and businesses. But people used to a standard and trusted currency or credit card may find barter a bit more complicated. So, it is worthwhile to explore the pros and cons of barter before you have to rely on it. Perhaps participate in one or two barter networks that meets your specific needs (geographic location/products/services) and provide the necessary support to ensure safe and successful trading. Compare and contrast. Refine.