Commentary Type

Where Are the Women in Central Banking?

Op-ed in the Washington Post


"I know who Summers is, but who is the other guy?" a friend asked as we discussed candidates to lead the Federal Reserve. It is not a guy, of course, but Janet Yellen, the vice chair of the Fed, who is the top candidate for the job now that Lawrence H. Summers has withdrawn his name from consideration.

Yet, statistically speaking, my friend's presumption was not misplaced. The United States has never had a female head of its central bank nor a female Treasury secretary, despite being home to the top university programs in economics, with an increasing share of advanced degrees going to women. Thirty-one of the 34 Organization for Economic Cooperation and Development (OECD) countries have not had a female central bank leader; the three exceptions are Austria, Finland, and Poland.

And the trend is not improving. All three women were in office in 1993; since 2002, there has been none.

There is a bright spot for women in the developing world. Of the 36 non-OECD countries with populations greater than 20 million, seven have had female central bank chairs. Here, the trend is positive, with five in office in 2013.

Why is it that nearly all central bank leaders are men? One possibility is that relatively few women study economics and finance, which tend to be prerequisites. This leaves a very small pool of qualified candidates. But being a finance minister has similar requirements, and six OECD countries had female finance ministers in 2011. Four are in office today.

A more troubling explanation is that women may still not be part of the tight-knit clubs from which central bank heads are chosen. Because central banks are independent, trust that the chairman's goals are aligned with the administration's interests is more critical than for other appointed positions. Bankers want someone they know and trust, the administration wants the same, and the independence of the institution means you'd better be pretty darn sure. In contrast to Cabinet positions, the Federal Reserve head cannot be fired if he or she strays from administration goals or fails to meet expectations.

As an example, consider that a stellar publication record, a pedigree as former chairman of the Princeton economics department and service on the Fed board were initially not enough for Ben Bernanke to be asked to replace Alan Greenspan. President George W. Bush brought Bernanke in to head the Council of Economic Advisers and got to know him better before naming him Fed chairman. The lack of relative outsiders in this position suggests it is about not only what you know but also whom you know and how well. Women may perform less well in areas traditionally populated by old boys' clubs.

If this is the case, more women should surface in these roles when terms are shorter or there is less independence in central banks. Of the five women serving in large markets this year—Argentina, Malaysia, Russia, South Africa, and Venezuela—only Malaysia has a central bank that is fully independent. That is also the only country of those five where inflation is running below 5 percent. The bank head in Malaysia, serving since 2000, has a PhD from the University of Pennsylvania and has won numerous prestigious banking awards.

The European Central Bank, where no women sit on the executive board, recently took steps to expand women's role in central banking, pledging to double the share of women in middle and senior management positions. The Fed has done better on that score and, with two women on the board, has at least one highly capable candidate for the chairmanship.

No one is suggesting that women be appointed to central bank boards as a token. But neither should gender rule out a candidate.

When my (non-economist) friend and I discussed candidates to lead the Fed, he noted that any woman on the shortlist probably knows more and worked harder than any of the men under consideration precisely because of the obstacles she had to overcome—and, therefore, she should be chosen. The flip side of this is the reason that discrimination should not exist in competitive markets: Non-discriminating firms can always hire the better-qualified woman and beat their competitors. Of course, another potential explanation for the absence of female central bank heads is that there is only one firm competing for their leadership.

Given the subpar performances of central banks in the United States and Europe in regulating the banking sector and anticipating the financial crisis—thanks in part to the groupthink mentality that has prevailed—more competition and less clubbiness in appointing their leaders surely would not hurt.

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