UPDATE 2-China pushes SDR as global super-currency

* China proposes sweeping overhaul of world monetary system

* IMF's special drawing right could replace dollar over time

* Advantage would be greater stability, fewer crises

(Adds comment, details, background)

By Alan Wheatley, China Economics Editor

BEIJING, March 23 (Reuters) - China on Monday proposed a sweeping overhaul of the global monetary system, outlining how the dollar could eventually be replaced as the world's main reserve currency by the IMF's Special Drawing Right.

The SDR is an international reserve asset created by the International Monetary Fund in 1969 that has the potential to act as a super-sovereign reserve currency, Zhou Xiaochuan, governor of the People's Bank of China, said in remarks published on the central bank's website, www.pbc.gov.cn.

"The role of the SDR has not been put into full play due to limitations on its allocation and the scope of its uses. However, it serves as the light in the tunnel for the reform of the international monetary system," he said.

Zhou diplomatically did not refer explicitly to the dollar.

But his speech, issued exceptionally in English as well as Chinese, spells out Beijing's dissatisfaction with the primacy of the U.S. currency, which Zhou says has led to increasingly frequent global financial crises since the collapse in 1971 of the Bretton Woods system of fixed but adjustable exchange rates.

"The price is becoming increasingly high, not only for the users, but also for the issuers of the reserve currencies. Although crisis may not necessarily be an intended result of the issuing authorities, it is an inevitable outcome of the institutional flaws," Zhou said.

Jim O'Neill, chief economist at Goldman Sachs in London, said the dollar-based system of floating exchange rates had demonstrated great flexibility down the years.

"But over time, as the world is taken off the steroids of the overleveraged U.S. consumer, you can't have the same dollar dependence as we have had. But who can provide it? And the answer is, if it functioned properly, maybe the SDR could have a much bigger role," O'Neill said.

FEWER RISKS

A super-sovereign reserve currency would not only eliminate the risks inherent in fiat currencies such as the dollar -- which are backed only by the credit of the issuing country, not by gold or silver -- but would also make it possible to manage global liquidity, Zhou argued.

"When a country's currency is no longer used as the yardstick for global trade and as the benchmark for other currencies, the exchange rate policy of the country would be far more effective in adjusting economic imbalances. This will significantly reduce the risks of a future crisis and enhance crisis management capability." he said.