SDR as alternative to US dollar?

Last week Chinese central bank governor Zhou Xiaochuan made a proposal that caused quite a stir among the international finance circles. Zhou proposed to elevate the status of SDR (Special Drawing Rights) in IMF (Internationa Monetary Fund) to replace US dollar as international reserve currency. Both Obama and Geither rejected it as "not necessary". But is it really?

What are the problems of current system where US dollar is the de facto currency for international trades and the world currency reserve? There are many. And I believe the main cause of the current global financial crisis can be traced to the problems with US dollar:

1) US has enjoyed an extremely low interest rate for a long time due to dollar's special status
Because dollar is the standard currency in which international trades are settled, excess capital has to flow to dollar denominated assets (US treasuries, agency MBS, and other US assets), creating an artificially low interest rate environment for the US and relatively high interest rate environment for the rest of the world. Due to the low borrowing costs, US government and consumers have over time accumulated huge amount of debt to support large government spending and lavish personal consumption. The gradual increase in US national debt (leverage) initially created bubbles in asset pricing (late 90s Nasdaq equity bubble and 2008 real estate assets bubble), and eventually led to global crisis of confidence in the value of dollar (2002-2008) and bursting of the asset bubbles (2008 financial meltdown).

2) When US dollar serves as world reserve currency, US monetary policy has impact beyond US borders, affecting global economic growth. When US loosens monetary control to try to finance domestic spending, it also creates liquidity glut around the world, and causes inflation to spike. That was what happened during 2002-2008: crude oil price rose from 20s to 150. Prices of grains, and other commodities rocketed during the same period. On the other hand, when the US ran into a liquidity crisis, as it is now, countries around the world are facing liquity freeze as well.

3) Individual countries can use currency manipulation to gain competitive advantage in international trades.
When US devalues its currency, it is essentially reducing its debt obligation to countries who hold US dollar reserve (lend money to the US). Often time, countries resort to currency devaluation to get out of national debt (Obama may be doing it now for the US). And in the menawhile, a cheaper currency increases export and reduces import, helping domestic industries to gain global competitive advantage. Such practices will lead to protectionism in global trades. Protectionsim will result in slower global economic growth.

All these problems can be corrected with a truly global currency, not in place of but on top of local currencies. A global currency, independent of the influence of any single country's domestic economic and monetary policies, should attain a much more stable value. Individual countries can still pursue its owm monetary policy flexibility without too much an impact on global economy. Countries don't feel cheated if their exports are paid for in the international currency that has stable value and cannot be devalued by single country for the purpose of gaining competitive advantage. So all in all, an international currency, maybe in the form of SDR of the IMF, may be a great idea, and may cure the US addiction to low borrowing cost and high consumption.

Isn't US trying to reverse trade deficit with other countries? SDR may help a long way towards that objective.