This paper develops a model to investigate the welfare implications of barter in Russia and other transition economies during the 1990s. We argue that barter is a welfare-improving phenomenon that acts as a defence mechanism against monetary instability. When firms react to tighter credit markets by switching to barter, the risk they face diminishes, allowing for a higher level of production.JEL classifications: E0, E6, P20, P21, P23, P26.barter is a welfare-improving activity. We demonstrate that barter should not necessarily be seen as an undesirable cost imposed on firms and on the society, but as an alternative technology that firms can use to hedge against increasing instability.