The British pound sterling is the official currency of the United Kingdom and its dependencies. Until the dissolution of the British Empire following World War II, it was also a major international trade currency, used for settling trade disparities between countries, and a major international reserve currency, retained by governments as a reserve store of value. Today, these international roles have been largely supplanted by the U.S. dollar and more recently the euro. Nonetheless, the British pound remains a major international currency owing to the large size of the British economy and to Britain's advanced financial sector.
People in Britain
The British pound sterling is used by people in Britain for everyday purchases, obviously. This includes residents of the UK and visiting tourists. British businesses also usually maintain their accounts in terms of pounds sterling.
Foreigners Trading with Britain
If a foreign company wants to buy things from a British company, it must purchase pounds in the currency market to pay for them. It will sell U.S. dollars or its local currency and buy pounds sterling, to be transferred to the British company as payment.
Foreigners Investing in Britain
London is a major world financial center, home to the large London Stock Exchange. Foreigners who want to buy stocks listed on the LSE must pay for them in pounds sterling. This means they must sell their local currency and buy pounds in the currency market to pay for their stock.
Foreign Central Banks
Although not as popular as it once was, the pound sterling remains the third most popular reserve currency in the world, after U.S. dollars and euros. This means that foreign central banks are buying and storing large amounts of pounds as a buffer against fluctuations in the value of their own currency.
