In the face of almost $US700 billion ($1 trillion) capital flight from China in 2015 as Chinese companies scrambled to pay off overseas loans amid a weakening renminbi, capital controls could reduce the downward pressure on the renminbi, allowing greater consumption in China to help rebalance the economy without a renewed surge in price-sensitive exports.

Asked if she agreed with Mr Kuroda's suggestion, Ms Lagarde dodged the question, but said: "I think the massive use of reserves is not a good idea".

IMF's basket of currencies

The subject of capital controls is very sensitive for the IMF, because late last year it recommended the renminbi be admitted into the fund's elite basket of currencies, including the US dollar, euro, yen and sterling, on the grounds that it was now "widely used" and "freely usable". Capital controls would undermine both conditions.

The IMF head, however, also suggested China improve its communication with financial markets to demonstrate it did not have a secret plan to weaken its currency. "I think what is needed for markets is clarity and certainty", over Beijing's declared new strategy to maintain the renminbi's value against a basket of currencies of its trading partners.

In Davos this week, Chinese officials admitted they had not clearly informed financial markets of their intentions regarding the value of the currency, adding to investor nervousness.

The vast majority of delegates at the World Economic Forum believe that the market turbulence this year is an overreaction compared with a gradually improving picture of health in the global economy.

Admitting markets were "very worried about China" and a global recession, Tidjane Thiam, chief executive of Credit Suisse, said investors were "overreacting", but market gyrations had become larger due to a lack of liquidity in the global financial system.

Mr Kuroda added: "I do not share the pessimistic view of the global economy".

The general view is that China is slowing and faces difficult transitions in its economy from industry to services, shifting from investment to consumption and from exports to domestic spending. "We're not seeing a hard landing [in China]," Ms Lagarde said.

Financial Times