Page 4 - Countertrade

Countertrade

What is countertrade?

Countertrade is a form of international trade in which payment is made in
goods and/or services, instead of cash. More often than not it is the
result of an importing nation having few reserves of foreign exchange. In
essence it is a process whereby the importing nation makes it
conditional that if trade is to occur then some element of its payment

must be in the form of exports. In this way it attempts to limit the outflow
of foreign exchange from the country.

Often countertrade occurs because a currency is not freely convertible
into other currencies. This may arise from a number of reasons e.g.

• government restrictions on currency convertibility
• to preserve foreign exchange reserves

• rising inflation

Countertrade involves barter-like agreements which involves exchanging
goods and services for other goods and services without recourse to the
medium of exchange - money. However, before trade can occur there
has to be a “double coincidence of wants” where each trader has to

have something the other wants.