[18] The pound sterling’s rise as an international currency started with so-called merchant banks in London lending to merchants to finance exports and imports, after which it developed into a vehicle for international investment and became a reserve currency. For firms, merchants, banks and governments, there are material costs involved in agreeing on one international currency standard, and in switching from one to another.
They often hold significant balances denominated in the leading international currency, and in doing so take on exchange rate risk, safe in the belief that this currency will remain the principal global payment unit in the future. As a result, inertia in international currency use has historically been substantial.