I think the right preposition should be "in".
But I also think you could probably change your sentence to make it easier "The pound sterling was the most used currency in transactions worldwide until 1914"
But, again, I'm not a native ... let's wait for their tips!
To me the sentence is a bit odd. First, let's unfold and rearrange the sentence a bit. You can express the idea much more clearly and straightforward (in my opinion) as follows:
Until 1914 most world trade was conducted [in / with] the pound sterling.
Not only does this sound better, but we're a step closer in diagnosing the in/with problem. I'm now going to put it in active voice before analyzing it:
Until 1914 most of the world conducted trade [in / with] the pound sterling.
Now, I think the reason it sounds weird is that:
(1) one generally conducts a transaction (or business), not trade;
(2) a monetary transaction is generally conducted in pounds, dollars, etc. (i.e. plural); NOT in the pound, in the dollar, etc. (singular); as opposed to with, which is used quite frequently with both singular and plural: with pounds, with dollars and with the pound, with the dollar.
So the way I'd write this sentence would be:
Until 1914 most of the world conducted (monetary) transactions in pounds sterling. <-- active, plural Until 1914 most (monetary) transactions were conducted in pounds sterling. <-- passive, plural
If you want to stick with a general noun like world trade instead of transactions, I'd say international business. I don't know why, but to conduct trade just sounds bizarre to my ears; I prefer to conduct business.
The thing is that the sentence, in fact, is an exercise from book of grammar English (Martin Hewings) in which, both the beginning and the end are already written, and you have to complete with the famous "in/with which"
Well, I guess I find the example poorly written then. Not only for the reasons mentioned above, but also because to me both in and with sound equally okay (or equally bad ), the reason being that even though we conduct business in a particular currency, we generally do trade with particular things -- they are the means with which people are able to carry out trade. For example:
Before the advent of coins, people traded with grain (as their form of currency).
That sounds fine to me. It sounds a bit more odd to say in grain. And oftentimes, especially with the verb to pay, both in and with are acceptable:
Before the advent of coins, people paid in/with grain.
He didn't have any cash, so I let him pay me in/with beer.
(The latter sentence means he gave me beer in exchange for what I did.)
So it's often unclear which choice is better, and sometimes they are equal. What I can say is that more often than not, it comes down to the verb used--with to pay, for example, both are acceptable, but with to trade, it depends. And considering I don't find the verb to conduct trade in the topic sentence to sound very good in the first place, the choice of in vs. with is hard for me to make: they both sound equally good/bad.
Having several native teachers from US and Canada, and, on the other hand from Britain and Australia, I guess there are several differences at the time to express the same idea, but I am not whom can establish which those characteristics are.