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How Money Has Removed The Difficulties Of Barter System?

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Muhammad Abdullah786 Profile
The use of money has converted a barter economy into a monetary economy into a monetary economy. The money has cover come the difficulties of barter system.
Money is used now as a medium of exchange, a common measure of value, a unit of account, a safe mean of transportation and storing of wealth.

Money is the most liquid asset. It is readily accepted as a mean of payment.
The introduction of money has made it possible to establish financial institution like the central bank, commercial banks, etc which deal in currency and near money assets such as bills of exchange, bonds, shares etc.

In a monetary economy, there is a circular flow of money. Money flows from firms as payment for factor services to the households. It flows again from households to the firms as the prices of goods and services.In a monetary economy, market mechanism operates. The demand and supply are brought into balance by the movement of prices. The decisions of what, how and for whom to produce are determined in accordance with the market conditions or dictates of price mechanism.

In a barter economy, the process of economic development is slow. With the use of money, division of labor has taken place, technology has developed, researches are being carried out, trade has expanded etc. in a monetary economy, and there is thus an all round economic progress.

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