What it is:
A barter (or bartering) is an exchange between two parties using goods and services for payment instead of currency.
How it works (Example):
The barter system enables two parties to exchange goods or services based on mutually perceived value.
To illustrate, a plumber can fix a baker’s sink, for which the baker would normally have paid $100 for the service. Instead, the baker gives the plumber $100 worth of his baked goods.
Another example would be a photographer agreeing to photograph a dentist's wedding pictures in return for some dental work of equal value.
These transactions do not involve any exchange of currency, however, each party benefits from the transaction.
Why it Matters:
People have bartered for goods and services since the dawn of civilization. Historically the barter system has been employed in times of financial crisis when currencies are unstable or when there is no common currency.
In addition, bartering is especially useful for parties that don't have a strong cash position that would normally be used to pay for goods or services.