Wednesday 26 October 2016

Why shouldn't new Central Bank boss be foreign or female?

For the first 66 years of its existence, the governorship of the Central Bank was a cosy sinecure for former Department of Finance secretaries-general.

While the appointment of insiders may have ensured a quiet life for ministers, it robbed the Central Bank of the ability to cry halt when, as happened during the Noughties, the government of day went off the rails and banjaxed the economy.

The post-Celtic Tiger economic crash exposed the dangers of appointing compliant insiders to key regulatory jobs such as governor of the Central Bank.

In 2009 the late Brian Lenihan broke with two-thirds-of-a-century of tradition and appointed the first outsider, TCD economist Patrick Honohan, to the job.

Prof Honohan soon demonstrated a welcome streak of independence in his new role. In November 2010, with the State unable to borrow on the international bond markets, the banks close to collapse and the general population close to panic, he went on RTE radio to tell listeners that Ireland was discussing a bailout package with the EU/ECB/IMF troika.

The fact that ministers were publicly denying this didn't win Prof Honohan any favour with his political masters.

The notion that his predecessor John Hurley, or any of the other former Department of Finance bosses who had headed up the Central Bank since its foundation in 1943, would publicly defy the Government of the day in this manner was simply inconceivable.

While there is no doubt that Prof Honohan would have been reappointed by the Government when his first seven-year term expired in late 2016, he is undoubtedly correct in deciding not to seek a second term and quitting a year ahead of schedule.

As he said himself, with the economic and financial crisis at an end, the nature of the job has changed fundamentally.


His decision may also have been encouraged by the exceptional crisis-related profits still being made by the Central Bank - €2.1bn last year alone.

A cynic might be forgiven for thinking that it's all downhill from here. Now that he has handed in his notice, attention will shift to the issue of who succeeds Prof Honohan as governor.

Addressing the media at the publication of the Central Bank's annual report yesterday, he jokingly suggested that his successor should either have a beard or wear a dress.

Traditionally, the bosses of central banks have been nationals of the country concerned. Not any more. American economist Stanley Fischer headed the Israeli central bank from 2005 to 2013, while the governor of the Bank of England is Canadian Mark Carney.

Why should Prof Honohan's successor be Irish? After all, the previous deputy governor of the Irish Central Bank, Matthew Elderfield, was from the UK.

If I was asked for my advice on who should succeed Prof Honohan, which I assuredly won't be, I would urge the Minister for Finance to appoint a young up-and-coming central banker from North America or Europe.

There must be dozens of young hot shots in the Fed, the Bank of England and the Bundesbank who would relish the opportunity of running their own show at the Irish Central Bank.

If that person is a female, then so much the better.

In fact, there's no reason why Prof Honohan's replacement shouldn't be a foreign female.

Just because an overseas central banker would be the best person for the job, there is no guarantee that one will be appointed. With the economic crisis fast receding into the memory, there are disturbing signs that the Government and civil service are reverting to their bad old "business as usual" habits.

If this is so, will they allow such a plum job as Central Bank governor, annual salary €276,000, go to an outsider? Will they what?

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