Being a reserve currency is all about paying debts. The more types of debts that can be paid using a particular currency, the more likely it is to be regarded as a reserve currency.

During the 19th century and the 20th century up to the beginning of the Second World War, many of the countries of the world owed the UK money for financial debts and needed Pounds Sterling to pay them. And many of those that did not, needed pounds to buy natural resources controlled by the UK and to buy technological goods which were only available from the UK or were most cheaply available from the UK. As a result the Pound formed a good reserve currency because it could be used to settle debts for nearly all international goods and services.

After the Second World War, this was no longer the case. While the UK still controlled many of the world's natural resources, it was deeply indebted and its manufacturing capabilities were damaged. During the next fifty years its manufacturing and debt situations improved but it did not regain its former pre-eminence. Moreover it lost control of the resources markets as its empire dwindled. One consequence was that the pound became less and less useful as a reserve currency as time went on.

In the 21st century the Pound Sterling is still a secondary reserve currency, one of several, but it has been replaced as the primary reserve currency by the US dollar which can now be used to buy all the resources, goods and services which formerly could only have been bought using Pounds Sterling.