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The boys’ club of central banking

‘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but Janet Yellen, vice chairwoman of the Fed, who is the top candidate for the job now that Lawrence Summers has withdrawn.

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 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 are nearly all central bank leaders are men? One possibility: Relatively few women study economics and finance, which tend to be prerequisites. This leaves a small pool of candidates. But being a finance minister has similar requirements, and six OECD countries had female finance ministers in 2011.

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.

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.

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 Ph.D. from the University of Pennsylvania and has won numerous banking awards.

The European Central Bank, where no women sit on the executive board, recently pledged to double the share of women in middle and senior management positions. The Fed has done better. With two women on the board, it 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. 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 their groupthink mentality – more competition and less clubbiness in appointing their leaders surely would not hurt.

(Caroline Freund is a former World Bank chief economist for the Middle East and North Africa.)

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