June 23, 2023: Global News Roundup
Barter makes a comeback—Trade in kind helps economies weather financial crises and dollar shortages
The Global News Roundup collects news stories from entirely international (non-US) media sources on variety of pressing global issues and events.
If you take a look at any mainstream economics textbook, you’ll likely find discussions of money and how it makes trade more efficient. A widely-used medium of exchange—be it gold or silver or shells or dollars or some other—greases the market’s wheels, permitting more trades to be made as buyers and sellers trade goods and services for money, and then take that money and use it to purchase other goods and services. The alternative—barter—is wildly inefficient, we are usually told, requiring what’s called a “double coincidence of wants”, i.e., that each party to a transaction has something that the other party wants or needs to trade, and also that they want/need these things in the same place at the same time.
Finding another person to barter with can be costly. It takes time. Let’s say I have coffee beans to sell and that I need kerosene to cook with. In a money-based trading system, I sell those beans to someone who wants coffee. I then take the proceeds and buy kerosene with it, typically from another party. The use of a mutually accepted means of exchange reduces transaction costs because I can buy or sell without regard for the specific needs or wants of the other party. But in a barter system, I have to spend time and energy identifying and then striking a deal with another who happens to have what I need and who also needs what I have. I have to find someone who both has kerosene to sell and wants my coffee in return.
But what the textbooks don’t often highlight, or even mention, about money-based systems is the basic, underlying requirement that parties to a trade need to have money to participate. This raises important questions: What do you do if you need stuff but don’t have money? Or what if you don’t have the specific type of money required to get the stuff you need? Barter is a mechanism by which people or groups can pay for the stuff they need and want in kind, that is, with other goods and services, rather than in cash. It’s a form of direct trade.
Barter was the main way trade was conducted in most places for all of human history prior to the widespread adoption of money. Some of the earliest forms of money we know about were shells or whale teeth used in tribal economies more than 3000 years ago, with the first ever metal coin introduced in the Lydian Empire sometime during the latter half of the 7th century BCE. While barter is perhaps less common today than it was in the past, it remains a fairly regular feature across the global economy. Among other contexts, barter shows up often during times of uncertainty, hardship, and crisis.
(Image: Lydian silver stater from the reign of Croesus, 560-546 BCE. “According to a consensus of numismatic historians, the Lydian stater was the first coin officially issued by a government in world history and was the model for virtually all subsequent coinage”, according to the World History Encyclopedia.)
One recent historical example that sticks in my mind is the barter network developed by residents of Greece during the Great Recession that began in 2008. Drowning in debt and with unemployment surging and tax burdens rising, the people of Greece started bartering to get what they needed, helping them overcome cash shortfalls. They used the internet to organize a network of residents, and established a 1:1 exchange rate between euros and what they called a “local alternative unit”, a form of credit that could be accumulated in the system by selling goods and services. Back in 2011, the New York Times (not an international source, sorry) reported that people were trading bookkeeping services and guitar lessons for hair cuts and use of their yards for parties. The network also organized open-air markets, kind of a “cross between a garage sale and a farmers’ market”. The internet-based system combined with the physical markets helped reduce transaction costs.
(Image: “Stall-holders at a bartering market in the central Greek city of Volos, where shoppers use Tem coupons to exchange services or products.” Photograph: Despoina Vafeidou /AFP/Getty Images, courtesy of The Guardian, January 2, 2013, here).
News this week highlighted how the governments of cash-strapped economies like Egypt and Pakistan are turning to barter as a means to mitigate shortages of US dollars needed to purchase imports, stabilize inflation, manage trade deficits, and obtain critical supplies. (E.g., see here, here, and here for prior coverage of economic troubles in Egypt and Pakistan.)
Several outlets reported this week that Egypt, which is facing “a prolonged currency shortage”, is working on a barter agreement with India to be announced later this month. The deal would “begin barter trade in goods like fertiliser and gas with Egypt as part of a wider deal that could see New Delhi extending a credit line worth several billion dollars to Cairo”. According to India’s Economic Times, the “agreement would allow Egypt to make purchases in rupees and bartering is being considered as a means to settle this debt through the sale of Egyptian products that might be of use for India”. Indian President Narendra Modi is slated to arrive in Egypt tomorrow (Saturday) to meet with Egyptian President Abdel-Fattah El-Sisi to “impart further momentum to the two countries’ multifaceted partnership”, and the barter agreement is expected to be part of the discussions.
Turning to Pakistan, on June 1, the government passed a “special order” allowing barter trade with Iran, Afghanistan, and Russia for “certain goods, including petroleum and natural gas”. The article from Reuters continued:
Left with barely enough foreign exchange reserves to cover one month's imports, Pakistan's government is desperately trying to manage a balance of payments crisis and bring inflation under control after it hit a record of nearly 38% last month.
The government order, called the Business-to-business (B2B) Barter Trade Mechanism 2023 and dated June 1, lists goods that can be bartered. State and privately owned entities would need approval to participate in the trade mechanism.
Sajid Amin, deputy director of the Sustainable Development Policy Institute, said Pakistan could gain particularly from oil and energy imports from Russia and Iran without adding to dollar demand. He added that the barter opportunity is important considering the dollar shortages the countries face.
Excitement in the local presses about the possibilities afforded by new barter arrangements was palpable this week. One business leader from Pakistan’s Balochistan province, which borders Iran, noted that emerging barter systems would “work wonders” for the local economy, generating revenue and jobs as barter helped to reduce the trade deficit and promoted “regional integration”. Shahzad Ali Malik, Pakistani industrialist and former president of the Lahore Chamber of Commerce, lauded the “vast potentials in energy and food sectors under the Iran-Pakistan barter trade”. The article from Iran’s Financial Tribune continued: “Malik expressed hope that due to barter trade with Iran, Russia and Central Asian states as well as the development of high-yield hybrid rice seed, there was a possibility of boosting Pakistan’s rice exports to $5 billion in the next five years.”
Pakistan’s Daily Times ran an op-ed that expounded on the broader economic benefits of barter trade for Pakistan, including “revitalizing” the economy “with less vulnerability from exchange rate risks, balance of payments crisis and inflation”: “The barter trade mechanism is a shot in the arms of Pakistan’s limping economy.” Critically, the author also notes how barter is being used as a strategic tool, to reduce Pakistan’s dependence on the US dollar and mitigate the impact of US sanctions:
In a strategic move, Pakistan recognized the potential of barter trade agreements with countries Iran, Afghanistan, and Russia and implemented a “business-to-business barter trade mechanism 2023” on June 2…This shift aligns with the global trend towards de-dollarisation; driven by geopolitical and economic factors.
Pakistan’s trade with Iran, Afghanistan and Russia has the innate potential to swell but US-led trade curbs have always acted as a dampener; keeping the quadrilateral trade among all neighbouring countries at ebb.
The bilateral trade volume between Pakistan and Iran has stood at around $2 billion. Similarly, Pakistan’s trade volume with Russia stands at approximately $400 million. The trade volume between Pakistan and Afghanistan is estimated to be around $1 billion. If executed in true letter and spirit, the barter trade among Pakistan, Iran, Russia and Afghanistan will go manifold.
But not all parties were pleased. Some businesspeople quoted by MenaFN on the new special order indicated that the business community had not been adequately consulted, including one “who believes that the government’s barter trade decision will primarily benefit the state rather than the traders. One the one hand, the country will be spared from using dollars for trade with Afghanistan, Iran, and Russia, while on the other hand, it will partially address the energy crisis through the import of oil and gas”.
In other news, the Indian government announced new policies to help license and regulate “cloud kitchens”, independent and often small kitchens that only offer delivery (no dine-in option). The cloud kitchen sector in India exploded after the pandemic restrictions closed many restaurants and public eateries. The crypto-exchange Binance introduced a “cloud mining” service that permits “users who are interested in Bitcoin mining but do not have the equipment” to subscribe to Binance’s cloud mining services (this article describes the process and equipment required to mine on your own). And, the UAE was reported to be experiencing perfect conditions for “cloud seeding”—the process of artificially inducing a cloud to make rain—and the government plans to continue its operations through the summer months.
Things I’m keeping an eye on:
1. Crypto: What a wild few weeks of news on this front. During the first week of June, the US Securities and Exchange Commission (SEC) filed lawsuits against two crypto exchanges, Coinbase and Binance, with charges that included operation of an unregistered exchange, brokerage, and clearinghouse. Crypto prices plummeted. Late last week, Binance told US accountholders that it would be temporarily suspending dollar deposits, but then reached a temporary agreement with the SEC this past Saturday to resume US operations. BlackRock also filed an application to start a Bitcoin-based ETF (exchange-traded fund) late last week. The SEC had previously denied all such applications, but many are speculating that they may now begin approving. Other firms quickly followed suit with their own applications. Crypto prices rebounded this week on the good news. Then, on Thursday, Nevada regulators reported trouble at Prime Trust, a major custodian of assets for crypto exchanges, which they noted was having trouble meeting customer withdrawal requests.
2. Ukrainian counteroffensive and African peace delegation: Things are not going well with Ukraine’s recent efforts against Russia. Here’s some of this week’s international coverage of the counteroffensive, from AsiaTimes, Politico Europe, and the WSWS. Meanwhile, the African peace delegation visited Kyiv and Moscow last week, though there are still no hard commitments from any party to a diplomatic settlement. While they were in Moscow it was reported that President Putin shared with the delegation an unverified, draft peace agreement drawn up over a year ago in March 2022 after peace talks in Turkey and initialed by Ukraine and Russia. Putin alleged that Ukraine backed out of the deal after Russia had withdrawn its forces from Kyiv.
3. Aftermath of Blinken’s trip to China: Wow. If you’re interested, see here and here for dueling government perspectives from state media outlets, by way of a follow-up on last week’s post. And here’s an article from The Korea Times on the fallout from President Biden calling President Xi a “dictator” shortly after Blinken’s visit.
4. US-India relations: Indian President Modi visited Washington DC this week to meet with US leadership. India’s neutral position on the Ukraine war has been a sticking point between the two nations since the war began, with India consistently condemning the war, and reiterating its neutrality and support for peace. The US is also seeking to India’s support in its bid to contain and counter China.
5. Western financial markets: US, UK, Japan, the Eurozone, liquidity is drying up…
I don't know...the two articles about Blinken's visit don't seem THAT different? It's bad for US & China to be hostile, both sides realize it, nothing much has been resolved but...nothing got worse? Both stories seem to have this relatively similar upshot or am I wrong?