International Monetary Fund Managing Director Christine Lagarde has said that the global economy is showing signs of stabilisation, but warned that there is no room for policy mistakes at this critical point in recovery.

Speaking in Beijing, Lagarde said positive signs were emerging from the euro zone and the United States, the two key regions adversely affected by the debt crisis which began in 2007/08 - an indication that policy actions taken in the wake of the global financial crisis were paying off.

She said:

On the back of these collective efforts, the world economy has stepped back from the brink and we have cause to be more optimistic. Still, optimism must not lull us into a false sense of security. There are still major economic and financial vulnerabilities we must confront.

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Addressing the challenges ahead for global recovery, Lagarde said that the levels of public and private debt in advanced economies were still too high, with the euro zone's public sector and banking rollover funding needs equivalent to about 23 percent of GDP in 2012.

Additionally, Lagarde cautioned the rising price of oil is becoming a threat to global growth.

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On China, the IMF chief, speaking to a gathering of top Chinese policymakers and global business leaders, said that the Chinese yuan could be a reserve currency, provided the country undergoes greater economic reforms.

Lagarde also praised China's efforts to rebalance its economy, saying that the 'highest levels' of the country's leadership appear to support the efforts needed to keep the world's biggest growth engine running.

Her comments come after weeks of debate over the true value of the Chinese yuan. After posting a shocking $31.5 billion trade deficit in February, Chinese officials have hinted that the yuan has reached its equilibrium value and would no longer appreciate.

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Western policymakers, however, believe that the yuan has been kept artifically low to China's trade advantage.

In late January, the IMF said it would conduct a review on the yuan to determine if it remains 'substantially undervalued' in the global currency market.

With Lagarde's latest comments, analysts now wonder if the IMF would change its position on the currency.

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