Most people associate bartering with poor or undeveloped societies, or

Most people associate bartering with poor or undeveloped societies, or with small, infrequent, and informal exchanges made within economies that use traditional currency. But bartering has also played a role when once robust economies have faltered. During the Great Depression, for example, farmers directly traded crops and other services with one another, since what little money the farmers had was of negligible value. And after the fall of communism, inflation was so high that individuals and businesses in the former Soviet Union found it safer to trade goods and services directly. (Traditional currency was still used, but the street value of the currency stretched to fit the need of the purchased item: rubles used to buy staples such as food were considered to be of greater value than rubles used to buy luxury items such as fur coats.)

We are now seeing a growing movement of individuals and businesses that prefer to use bartering in a wide variety of transactions, including multi-million-dollar purchases. In New Zealand, a house and surrounding property, valued at 5.1 million United States dollars, was recently sold for 1.7 Barterdollars (BDs), a form of credit used by about 9,000 individuals and 50 businesses in four countries. Though the deal did not involve legal tender, it was not illegal, and a contract secured the sale through business property owned by the buyer. In this case, the seller will use most of the BDs to obtain plumbing and electrical work — for both office space and his new home — from the buyer, who owns a business that provides these services. The seller is under no obligation to use the BDs this way, however, and can spend them elsewhere or simply save them as credits for later use. There is, however, little incentive to save, because, as with most barter systems, the currency does not generate interest. This also applies to loans: several bartering organizations have set up facilities that lend currency in exchange for an agreement that stipulates that the borrower will "pay" it back with products and services over a set period of time, interest-free, though a transaction fee is charged.

Community-based non-profit bartering is generally not subject to taxation, but virtually all governments consider bartering by businesses identical to cash transactions, and taxes need to be paid accordingly. However, the nature of these transactions has made them harder for governments to track, especially as bartering on the Internet has become more popular. Determining the value of the terms of a barter can also be problematic. If A designs a website for B in exchange for barter credits, A should pay taxes on the value of the credits received, while B can consider the credits as a business expense. For tax purposes, A has an incentive to underestimate the value of the transaction and B has an incentive to overestimate. To minimize this sort of problem, some governments have set a standard, so that 1 credit in a non-governmental but nationally recognized barter system corresponds to a certain valuation of the official currency.

1. According to the author, which of the following is a problem for governments?

(A) Non-profit organizations that serve communities are not subject to taxation on barter transactions.
(B) Governments of different countries do not always agree on which bartering systems to recognize.
(C) A separate set of tax laws apply to financial transactions made on the Internet.
(D) Bartering is inherently different from conventional financial transactions.
(E) An individual who sells a service in exchange for bartering credits is likely to judge the worth of the service to be greater than would an individual who sells the same service in exchange for traditional currency.

2. According to the author of the passage, bartering in the former Soviet Union was

(A) used along with an unusually flexible currency
(B) problematic because of the difficulty of determining the value of goods
(C) mainly used by farmers who directly traded with each other
(D) used for the purchase of both staple goods and luxury items
(E) subject to taxation to the same degree as were traditional transactions

3. According to the author, a seller who receives Barterdollars (BDs)

(A) can receive interest on the amount received through exchange facilities that accept BDs
(B) does not owe taxes on the credits received until they are used for a purchase of goods or services
(C) can apply the credits received to an unrelated transaction
(D) can, in some countries, redeem the BDs for traditional currency
(E) is obligated to redeem the Barterdollars through the purchase of goods or services offered by the buyer from whom the BDs were received

4. The primary purpose of the passage is to

(A) take issue with the way in which most governments today handle the problems involved with taxing barter transactions
(B) discuss recent, non-traditional ways in which bartering is used, and to present some of the ramifications of this use
(C) persuade the reader that bartering transactions are as legitimate as those that involve traditional currency
(D) provide some of the reasons for and against the widespread use of bartering
(E) show that bartering will not become as popular as other types of financial transactions until the tax issues associated with bartering are resolved