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MODERNIZED BARTER TRADE, BOTTOM UP PROJECTION UNDER THE COORDINATION PRINCIPLE BY SINGIZA IBRAHIM +256789587558, +256700251982 [email protected] APRIL 2013 Abstract The paper discusses an alternative exchange instrument; modernized barter trade and bottom up projection under the coordination principle as used in the daily exchange of goods and services. The study will continue to show the flexibility, speed, quality and velocity of the alternative exchange instrument as it will help in boosting the economic performance of any economy. Modernized barter trade aims at solving the weaknesses of the monetary system by use barter currencies or invisible currencies in meeting day to day transactions. The paper further argues that the use of the monetary system alongside modernized barter trade and bottom up projection under the coordination principle will increase efficiency in trade. Barter currencies will be used in the exchange of goods and services in absence of cash. They can be in any form of currency and can be regulated by the central bank as money. The price of a good or service in the monetary system will remain the same in modernized barter trade as set by the government. 2 TABLE OF CONTENTS Abstract………………………………………………………………………………………………………………………………..2 1 Introduction……………………………………………………………………………………………………………..…….5 2 Ancient barter trade and its limitations…………………………………………………………………………..7 2.1 Terms used in transforming ancient barter to modernized barter…………………………………..8 2.2 Why modernized barter trade?........................................................................................9 3 Modernized barter trade, Bottom up projection under the coordination principle……….9 3.1 Modernized barter trade and it’s expression………………………………………………………………10 3.1.1 Transaction process or modal……………………………………………………………………………………..11 3.1.2 The transaction modal under the monetary system…………………………………………………….11 3.1.3 The transaction modal under the modernized barter trade system……………………………..11 3.1.4 Design and application of modernized barter trade……………………………………………………..11 3.2 Bottom up projection………………………………………………………………………………………………….12 3.3 The coordination principle………………………………………………………………………………………….12 3.4 Implementation plan of modernized barter system……………………………………………………13 4 Relevant literature…………………………………………………………………………………………………….14 4.1 IRTA’s CEO Paul suplizio’s views on the role commercial barter in the modern world…14 4.2 Modernized barter trade as a system of exchange………………………………………………………18 4.3 The role modernized barter in modern economies………………………………………………………19 4.3.1 Modernized barter trade and modern technology……………………………………………………….19 3 4.3.2 Modernized barter system and the banking system……………………………………………………20 4.4 Discussions and comparisons……………………………………………………………………………………….20 4.4 Ancient Barter trade versus modernized barter trade…………………………………………………20 4.4.1 Ancient barter system versus Monetary system…………………………………………………………..20 4.4.2 Monetary system versus modernized barter system…………………………………………………….21 4.4.3 Monetary value versus invisible value…………………………………………………………………………..21 4.4.5 Money versus barter currencies…………………………………………………………………………………..22 4.4.6 Monetary policy versus modernized barter policy………………………………………………………..22 4.4.7 Modernized barter system versus the fiscal policy………………………………………………………..22 5. Methodology and data………………………………………………………………………………………………….23 6. Conclusion……………………………………………………………………………………………………………………24 References……………………………………………………………………………………………………………………………….25 4 1. Introduction Modernized barter trade solves all the problems of the ancient barter trade by attaching an invisible value to goods and services to be used in the exchange. The modernized barter trade and bottom up projection run under the coordination principle to make everything happen in the transaction process. This new system is aimed at helping the monetary system in exchange of goods and services. World economies are changing at a very high speed, and the need to exploit various economic resources has risen. This system will help micro economics by improving cash flows, increasing sales and profits at both international and corporate level. It will increase sales in the way that companies will stop producing at excess capacity and encourages them to sell off their inventory as quick as possible. Therefore the government will increase its revenue through taxing the large profit base realized by various companies. On the other hand it will help macro economics by reducing inflation and put little risk on the economy in times of a financial crisis by helping the reserve money programme to perform. Through the modernized barter trade and bottom up projection under the coordination principle, a new era of economic thinking will be created. The speed, flexibility and convenience in the transaction process will help economies to increase GDP at a very high rate which will lead to both economic growth and development. However, the innovative design calls for very close supervision and management to produce desired results. Its framework requires good technology to keep transaction records with accuracy. The new system will give way to improvement of business and help various economies stimulate the flow of transactions in the economy. It will create stability in the dynamic trade environment through decreasing the occurrence of frozen assets. The modernized barter trade design performs the duties of money in the transaction process since 5 it holds the fact that the monetary value of good or service equals to the invisible value of a good or service. The bottom up projection is more of supporting engine to modernized barter trade in ensuring its efficiency in solving all the problems of ancient barter trade. The projecting of economic activities to meet the money demand and supply through the coordination principle will create an easy way of implementing the new system to work together with the monetary system. The cores of the new system are not predominantly driven by the supply and demand of paper money but call for the use of non cash transactions to improve trade. The new system can act as storage of wealth and means of deferred payment to facilitate future payments. It’s time we create an economic revolution with the new mode of carrying out transactions to help the monetary system perform perfectly. The new system is designed to minimize the problems of the monetary system and make countries proceed with excelling economies. The new system can be introduced to various economies around the world depending on their structures. The interdependence between transactions will drive economies forward with the new system and create room for favorable trade. It can be closely supervised better than the monetary system making it easier for economic planning. The strategy outlines a critical realistic approach in the transformation of the barter trade system. It aims to reform the weaknesses of the ancient barter trade system against the monetary system. The combination of modernized barter system and monetary system will give rise to a new economic order. This will be achieved through the use of modernized barter trade monetary trade. Not many years ago, almost every country suffered a financial crisis, while some are progressing with a recession plan; others are still dwelling in it. Adoption of the strategy reduces the effects of the financial crisis since the economy is closely watched with the plan’s flexible approach. The plan continues to reduce on the public debts to the strengthening of the monetary policy 6 system. During the process of strengthening the monetary policy system, the fundamental difficulties associated with operating the reserve money programme will be improved. The procedures taken will give magnitude to aggregate demand and supply of goods and services therefore avoid the occurrence of frozen assets. Currently, countries are undergoing a fundamental transformation and the rate at which this happens will increase further in the future. Countries that will be successful in improving the financial sector with use of very good economic policies through better financial and fiscal policies will be able to produce sound economies. Every government across the world gets most of its money from its local taxes and exports, so improving on the tax system will give birth to easy support of the government programmes. Many of the developing countries will be able to sort out their foreign exchange issues in order to trade between themselves. 2. Ancient Barter trade and its limitations The following is the definition of barter trade and its limitations according to wikipedia.org ; Barter is a system of exchange by which goods or services are directly exchanged for other goods or services without using a medium of exchange, such as money. It is distinguishable from gift economies in that the reciprocal exchange is immediate and not delayed in time. It is usually bilateral, but may be multilateral (i.e., mediated through barter organizations) and usually exists parallel to monetary systems in most developed countries, though to a very limited extent. Barter usually replaces money as the method of exchange in times of monetary crisis, such as when the currency may be either unstable (e.g., hyperinflation or deflationary spiral) or simply unavailable for conducting commerce. The limitations of barter Barters' limits are usually explained in terms of its inefficiencies in easing exchange in comparison to the functions of money. 7 Need for presence of double coincidence of wants: For barter to occur between two people, both would need to have what the other wants. Absence of common measure of value: In a monetary economy, money plays the role of a measure of value of all goods, so their values can be measured against each other; this role may be absent in a barter economy. Indivisibility of certain goods: If a person wants to buy a certain amount of another's goods, but only has for payment one indivisible unit of another good which is worth more than what the person wants to obtain, a barter transaction cannot occur. Lack of standards for deferred payments: This is related to the absence of a common measure of value, although if the debt is denominated in units of the good that will eventually be used in payment, it is not a problem. Difficulty in storing wealth: If a society relies exclusively on perishable goods, storing wealth for the future may be impractical. However, some barter economies rely on durable goods like pigs or cattle for this purpose. 2.1 Terms used in transforming ancient barter to modernized barter Monetary value of a product or service (MVps) The value or worth that a product or service would bring to someone if sold under the monetary system. Invisible currencies or barter currencies The currencies used under modernized barter trade for example barter dollars or invisible dollars, barter shillings or invisible shillings. Invisible value of a product or service (IVps) The value or worth that a product or service would bring to someone if sold under modernized barter system. 8 2.2 Why modernized barter trade? I originated modernized barter trade from comparing money has a legal tender used in exchange today and barter trade as a medium of exchange used in the early days. After critical analysis of the two forms of exchange, I came up with modernized barter trade and bottom up projection. The ideologies run alongside each other for better results during the implementation plan. The modernized barter trade ideology supports the existence of the invisible value on products and services. Basing on the fact that barter trade had many limitations compared to monetary system it was dropped as a medium of exchange for goods and services. However, barter trade supported the fact that goods and services would be exchanged for others. This made me give a product or service an invisible value to make it more flexible in the barter trade. This was successful because each product can be sold by its monetary value for example one kilogram of beans costs $2.00 and transport costs $1.00. This means that $2.00 and $1.00 are monetary values of a product (beans) and a service (transport) respectively and have the same invisible value respectively on which they can be sold. The attachment of a invisible value to a product or service makes it more flexible in the modernized barter trade system. 3. Modernized barter trade, Bottom up projection under the coordination principle Modernized barter trade system is a new developed alternative exchange instrument to the monetary system which helps in the day to day exchange of goods and services. Modernized barter trade and bottom up under the coordination principle combined will help in the implementation of a new exchange instrument. 9 3.1 Modernized barter trade and it’s expression Modernized barter trade is the use barter or invisible currencies in the exchange of goods and services. The attachment of the invisible value which is the same as the monetary value on the goods and services gives them flexibility in the transaction process. Therefore; The monetary value of the product or service equals to the invisible value of the product or service : MVps = IVps Where; MV is money value IV is invisible value ps is product or service The expression implies that the monetary value of a product or service in the monetary system is equal to the invisible value of the product or service in modernized barter trade due to the monetary and invisible value attached on the same product or service. Barter currencies have got an invisible value which allows them exchange goods and services. Although the engine has got limitations when managed poorly, it brings about a new approach in the exchange of goods and services. Countries will find ways to manage and apply it basing on the structures of their economies. 10 3.1.1 Transaction process or modal The transaction process compares both the monetary value and the invisible value. It clearly shows the exchange of goods and services using the values. 3.1.2 The transaction modal under the monetary system monetary value Exchange products and services Transactions in the economy depend on the money demand and supply. Products and services are exchanged for their monetary value. 3.1.3 The transaction modal under the modernized barter system Invisible value Exchange products and services Transactions in the economy depend on the barter currencies demand and supply. Products and services are exchanged for their invisible value. 3.1.4 The design and application of modernized barter trade The design illustrates how barter currencies will look like and the application will clearly show how they are applied in our economies. The design and application modernized barter trade calls for high technology which will establish its efficiency. 11 Design Barter currencies have no definite design like money which includes notes and coins but can be managed by information systems. Gadgets that will carry them when used in the exchange have to be built for example look at how telecom companies help us manage its customer tailored services. Gadgets that send directly barter currencies to each other are needed to be put in place. The central bank has to control a centered database for these gadgets just like how telecoms companies manage their services. Check out the analyzed system as proposed by Singiza Ibrahim for more information about the gadgets to be built and their management. Application Modernized barter system will be applied alongside the monetary system for better results. The monetary system will help modernized barter system in areas where it can’t operate since it highly depends on technology and mutual agreements. Applying it to modern economies is a strategic plan which will take time in order to fit it in the daily running of business. 3.2 Bottom up projection This is the projecting of trade volume from the bottom to the top to meet the money demand and supply. Bottom up projection boosts the trade to give way to improved cash flows, sales and increasing profits. Under the bottom up projection, trade should be projected towards the money demand and supply to create efficiency. 3.3 The coordination principle The principle states that there is interdependence between various economic activities in that the occurrence of a transaction leads to the occurrence of another. This principle is very important also in the networking of the economy to make modernized barter trade applicable. 12 Transactions carried out in the economy have an interdependent relationship that is to say a transaction at a given time will accelerate the occurrence of another transaction at another given time hence showing the co-ordination. Co-ordination of economic activities in the monetary system highly depends on the money demand and supply where as those in the modernized barter trade will highly depend on the demand and supply of barter currencies. However, the co-ordination principle can give more meaning in both the monetary system and the modernized barter trade system when they are pulled together to trigger economic performance. This can be more emphasized when modernized barter trade system is introduced to ensure the effectiveness of the monetary system. 3.4 Implementation plan of modernized barter trade system. It can be said that the implementation of this critique is valid to both developed and developing countries. Basing on the counterfactual used, the implementation of the strategy in developed and developing countries will highly depend on their technological levels. Different modifications will be made to make the plan suitable to various economies around the world. The perspective use of the alternative exchange instrument that is to say modernized barter trade will not only improve the financial sector but perfectly enable governments to monitor the monetary system closely. The improvements will be witnessed during more direct control and involvements of governments in the economic activities. Developments in various sectors will be supported by these modernized barter trade since all sectors highly depend on the financial sector, and then its improvement will bring about balanced growth. 13 4. Relevant literature There is various literature about modernized barter trade around the world. The International reciprocal trade association (IRTA) is nonprofit organization which aims at regulating modern barter. It has been able to manage some business using modern barter but it has failed to make it work like money, but I was able to break this barrier by attaching an invisible value on a product or service to make it later in the exchange. 4.1 IRTA’s CEO Paul suplizio’s views on the role commercial barter in the modern world What would you say if you were called upon to testify before your national legislature on the economic rationale for barter and whether it should be encouraged as a matter of public policy? In this think –piece, IRTA’s CEO Paul suplizio tackles a question that the barter industry will have to confront in the not-too-distant future. To understand the role of commercial barter in the modern world, he looked at barter’s role at four distinct levels: the firm, the community, and the national and international economies. Barter and the Firm Business people barter because they are able to finance the purchases of things they need out of the additional sales of their own produce or service. When a merchant buys something using barter credits, he knows that the purchase will be paid for by his sales to other businesses in the market place. In a cash situation, the cash spent by the merchant for the same purchase would have to come out of existing sales, not new sales. He has no assurance, when he makes a cash purchase, that this will result in additional sales of his own product. His prospects for making additional sales increase when he participates in the barter market place, because barterers will go out of their way to buy from other barterers. This is because they are paying with their own unused inventory or spare capacity. 14 The economic advantages of barter hinge on the fact that barter brings in new business and conserves cash. Barter sales are an increment over and above cash sales. They are supplement to a firm’s cash business, usually amounting to not more than 20 percent of total business. All firms can take advantage of barter to bring in new business. Those firms with spare capacity or excess capacity have strong incentives to do so. Financing purchases through additional sales of its own product or service is often the cheapest method to finance available business. This is because it is paying for its purchases with the profit margin on its extra sales or unused capacity. Incremental barter sales yield trade dollars or trade credits which may be spent with the barter company or other members of the barter system. Trade dollars are units of account denominated in dollars representing the right to receive, or the obligation to pay in goods or services available throughout the system. These accounting units are maintained by the exchange, which acts as a central clearing house. The cost of one dollar is the inventory, labor, or other cost of producing an additional dollar’s worth of barter sales. A firm buys with trade dollars which cost it less than the revenue it earns from extra sales. In textbook economics, as long as incremental revenue exceeds incremental cost, there will be an economic incentive to make the extra sale. As an example, take an auto parts supplier who does a good deal of direct mail advertising. He joins a barter exchange and notes that several printers are members. Other things being equal, he has an incentive to buy his printing from the barter printers because (a) he won’t have to reduce his cash flow for this business expense, but instead, (b) he can finance this expense out of trade dollars earned from barter sales of his own products and services to other members of the barter system, at a price that exceeds his incremental cost. 15 Barter aids the businessman who has reached a certain level of cash sales and still has the capacity to expand output; or who has excess inventory or unproductive assets. Few and fortunate, indeed, are the business people who, having made an investment in plant and equipment, find themselves operating at full or over-full capacity. For most firms, spare capacity and obsolescent or unused inventory are a normal occurrence, with a powerful economic plus: they permit additional sales at relatively low incremental cost. Examples are the printer, with large sunk costs in equipment, but relatively low cost of additional output; the hotel with rooms unfilled; the dentist with time to take more patients; the radio or television station with unsold advertising. These firms are foregoing income from their unused capacity. If shown how to stimulate additional sales through barter, they have a strong incentive to make those sales as long as they can cover their costs. The price at which they can sell on barter will either be the same as the normal cash price, or as a minimum, a price greater than the cash liquidation value of inventory. Firms with high cash inventory costs will find barter even more advantageous if they are able to receive some cash in the transaction to apply to the cost of their inventory. Income taxes take away part of the extra profit from barter sales. However, even at the highest bracket rate, a firm makes money after taxes on its additional sales. When reducing the extra profit, the income tax should not affect a firm’s decision to make sales to reap that profit. This applies whether the additional sales are cash sales or barter sales. Since passage of the Tax Equity and Fiscal Responsibility Act of 1982, barter exchanges are required to report the barter income of their clients to IRS on Form 1099-B. The economic advantages of barter can be seen by comparing a firm’s position before and after barter. We see that barter results in additional revenue, hence added profit; barter enables a firm to conserve cash, resulting in better liquidity and a saving equal to the going cost of money. Firms also gain from an intangible web referrals, advertising, and associations that generate both additional cash and barter business. 16 The barter company’s commission charges must be included in a firm’s cost calculation, but these charges are normally not a deterrent to barter. Indeed, the largest cost a firm can experience is the income foregone by not selling on barter. In many cases, firms might find it profitable to pay an even higher commission in order to have the opportunity to reap additional profits through barter sales. Barter and the Community Barter would benefit an economic community even if the barter system consisted of firms who had previously been each other’s cash customers. This is not to say that barter sales should replace cash sales at the same selling price, they should not. But the reality is that cash sales are limited by cash incomes of firms in the community, resulting in some firms having excess capacity. These firms do more business with each other if they can barter because of their ability to (1) make additional sales out of excess capacity, earning “new” money in the form of trade credits, and (2) paying for what they buy with additional trade credits whose cost to them is incremental cost of their own product or service. Establishing a barter exchange results over-all in new business for the community rather than displacement of pre-existing cash business. This conclusion stems from the existence of surplus inventory or excess capacity in the cash economy, and the ability of firms to make extra sales and earning “new” money in the form of trade credits. The new money supply adds to cash money supply, and the extra liquidity finances a higher level of real trade. Barter and National and International Economy By increasing demand for final goods and services in an economy, barter generates additional employment, production, and purchasing power. It results in a higher rate of capacity utilization, and enables firms to spread their overhead costs over more units of output, thereby reducing average costs and lessening inflationary pressures. Textbook economics tells us that when an economy is operating at full capacity, costs shoot up dramatically because of resource 17 shortages and bottlenecks. But it is clear that there is a range between current capacity utilization (about 80 percent in the U.S.) and full capacity within which firms can expand output at constant or even declining cost. It is within this range that commercial barter transactions take place. The reality is that a modern economy lacks a fully elastic currency, capable of expanding with the growth of production and providing the liquidity needed to clear product and service markets. Because monetary fluctuations have contributed to economic instability in the past, a nation’s money supply is not permitted to expand to meet the demand for money to finance an increase in gross domestic product. Instead, the money supply is controlled by monetary authorities who have their eyes fixed on particular economic objectives: curbing inflation, ensuring full employment, protecting the value of the currency in foreign exchange markets, and so on. Balancing between these sometimes conflicting objectives often leads in advanced economies to a policy of monetary restriction. This restrains the flow of spending in the in the cash economy, limiting demand for output, and creating excess capacity. Barter and its modern counterpart, the creation of trade credit to finance greater demand foods and services, helps alleviate monetary stringency, puts unutilized capacity to work, and speeds up the flow of goods and services to their most productive uses. It thus adds an important measure of flexibility to the trade and payments system and market adjustment mechanisms of the domestic and international economies at a period in history when global economic organization is undergoing a dramatic restructuring. Commercial barter should therefore, as a matter of public policy, be encouraged 4.2 Modernized barter trade as a system of exchange Modernized barter trade has solved all the problems of ancient barter trade through the use of the invisible value to equally match the monetary system and perform even beyond it. Countries will need to apply modernized barter trade to increase efficiency in the exchange of goods and services. The speed, flexibility, velocity and convenience in the use of modernized 18 barter will not only ease transacting of goods but it improve on quality in the exchange due to its application. 4.3 The role modernized barter in modern economies The role of barter in the modern economies will be looked at four distinct levels: the firm, the community, and the national and international economies. Modernized Barter and the firm Firms will need to apply modernized barter to meet their day to day transaction needs. These non cash transactions will help firms trade with their clients through allowing fast exchange of goods and services. Firms will find it easy to both keep and track their cash flows since the system will provide a clear about incomes and expenditures in their trade. Modernized Barter and the community The community influences the firms through providing the market of goods and services. The ease with which the community will trade it’s goods services will be seen with the application of the barter system. Modernized Barter and National and International Economy By improving the exchange system in the economy, modernized barter provides speed, quality and convenience in buying of goods and services. The government will find it very easy to manage their fiscal policy because modernized barter provides a clear view of accounts of various institutions. 4.3.1 Modernized barter system and modern technology Modern technologies will play a vital role in the development of various information systems that will help in the management of barter currencies. Modern technologies will be the heart in both implementing and applying of modernized barter. 19 4.3.2 modernized barter system and the banking system Banks will find it very easy to manage accounts of different people. The central bank will provide a system which will help commercial banks to connect the barter gadgets direct to banks of their choice. This will reduce on the liquidity preference of people since the barter currencies will always be in safety management of commercial bank and are available to its customer at any time. The exchange system will improve the services provided by the commercial bank hence making it very easier for the central bank to regulate the economy. 4.4 Discussions and comparisons Discussions and comparisons of modernized barter system and other economic variables is very important in adaptation of the exchange system for its application. 4.4.1 Ancient Barter trade versus modernized barter trade Modernized barter trade has solved all the problems of ancient barter trade including absence of common measure of value, indivisibility of certain goods, lack of standards for deferred payments, difficulty in storing wealth and need for presence of double coincidence of wants by attaching an invisible value to products and services. 4.4.2 Ancient barter system versus Monetary system The monetary system saved us from ancient barter trade which was characterized with limitations which could hinder exchange of goods and services. Although it’s affected with some problems but it has helped economies advance from primitive ones to modern ones. The monetary system solved all the problems of ancient barter system and gave man an easy way of exchanging goods and services. Money is a good system and much better than straight barter. If the only system for obtaining goods was barter, then you would have to find someone who wants what you have and also has what you want. With the money system, you only have to find someone who wants what 20 you have (goods or services) that you can receive money for, then you can trade money for the things that you need. Barter worked well in the past when most people provided for their own basic needs of food and shelter, but these days, people wouldn't have the slightest idea where to start if they were given a plot of land and expected to provide for their families. (http://answers.yahoo.com) 4.4.3 Monetary system versus modernized barter system The monetary system is working perfectly in the modern economies by helping us meeting both our daily and future transactions. All the way different measures have been taken to improve it’s application in our economies. It’s flexibility and adaptability to different user needs can also become its weakness, as it may lead to unsustainable growth models and imbalances. The monetary regime has been so useful in both global economic growth and development through facilitating our financial sector. The exchange system in the monetary system is very flexible but it doesn’t keep track of transactions made. The modernized barter system comes with a more flexible package than the monetary system in that, unlike the monetary system which doesn’t see a financial crisis coming, modernized barter trade system keeps track of records which can be assessed to take safety measure to prevent a crisis. It’s very easy to monitor modernized barter than the monetary system since databases to witness the occurrence of different transactions are put in place. This further helps governments not to be cheated of tax since the modernized barter system brings out all previous transactions of different business entities. 4.4.4 Monetary value versus invisible value As presented earlier that the monetary value of product or service equals to the invisible value of a product (MVps = IVps), and as applied it will bring satisfaction to the user. The invisible value attached on goods and services makes them lighter in trade by eliminating all the problems that ancient barter trade faced. The invisible value as used in modernized barter emphases the use barter currencies which will be given in for goods and services. 21 4.4.5 Money versus barter currencies According to investopedia.com, money, in and of itself, is nothing. It can be a shell, a metal coin, or a piece of paper with a historic image on it, but the value that people place on it has nothing to do with the physical value of the money. Money derives its value by being a medium of exchange, a unit of measurement and a storehouse for wealth. Money allows people to trade goods and services indirectly, understand the price of goods (prices written in dollar and cents correspond with an amount in your wallet) and gives us a way to save for larger purchases in the future. 4.4.6 Monetary policy versus modernized barter policy According to wikipedia.org , Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment. Monetary theory provides insight into how to craft optimal monetary policy. It is referred to as either being expansionary or contractionary, where an expansionary policy increases the total supply of money in the economy more rapidly than usual, and contractionary policy expands the money supply more slowly than usual or even shrinks it. Expansionary policy is traditionally used to try to combat unemployment in a recession by lowering interest rates in the hope that easy credit will entice businesses into expanding. Contractionary policy is intended to slow inflation in order to avoid the resulting distortions and deterioration of asset values. 4.4.7 Modernized barter system versus the fiscal policy Fiscal policy won’t change at all due to application of the modernized barter system but the collection of taxes will be made easier due to easy tracking of companies’ trading records. Companies will not find it difficult to dodge taxes because their trading records are easily collected. 22 5. Methodology and data The study employs an innovative approach aimed at improving ancient barter trade to a modernized one. Singiza Ibrahim developed ideas that have given ancient barter trade a new look which has enabled it to exchange goods and services as compared to the monetary system. The alternative exchange instrument is developed to assist the monetary system in trade. Vital data has been brought together in order to make this idea work like money and even better. The attachment of an invisible value to goods and services enabling them to be exchange unlike the ancient barter system which had a lot of limitations to trade goods and service In this paper we follow the methodological approach in management of the monetary system as it will be needed in the management of modernized barter trade. The development of the expression MVps = IVps (the monetary value of a product or service equals to the invisible value of a product or service) will give and easy way in the applying of the new system. Given the different look of barter currencies and money, the role in the exchange of goods and services will remain the same. Unlike the old system of barter which didn’t have speed, flexibility and convenience, this paper focuses on the improved version barter that has come with that is the combination of speed, flexibility and convenience. The trend by which economies have to apply modernized barter alongside the monetary system is very critical to technologies to be applied. The system analysis towards it’s applicability should be the major concern to use of modernized barter trade since it basically leans its applicability to modern technologies. The development of various systems towards the use of barter currencies will become our major concern. 23 6. Conclusion As various countries have taken measures to boost the performance of their economies, the structural economic policies to reform the economy and improve the exchange of goods and services have to be guided to achieve strategic economic goals. However, with my modernized barter trade firms, communities, national and international will increase the efficiency in the exchange of goods and services. The use of modernized barter trade and bottom up projection under the co-ordination principle will improve on the economic performance of both developing and developed countries 24 References http://en.wikipedia.org/wiki/Barter www.irta.com http://www.investopedia.com/articles/07/roots_of_money.asp http://answers.yahoo.com/question/index?qid=20090305131818AAJoiqV http://en.wikipedia.org/wiki/Monetary_policy 25