The pandemic has deepened gender disparities. Central banks must recognise they have a role to play in reversing these trends.
The coronavirus pandemic has hit women especially hard, particularly where they are most vulnerable: their incomes, health and safety. Women make up the majority of workers in many of the sectors of our economies that came to a standstill last year. Making matters worse for women, health systems have cut or delayed sexual and reproductive health services to streamline treatment for Covid-19. And lockdowns and curfews have coincided with a spike in domestic violence.
These problems foretell a protracted reduction in women’s capacity to join the labour force, repay loans, post collateral or start businesses. Worse, these threats to national economies could become permanent, unless policy-makers act swiftly. That includes central banks, which have a number of tools for combating the pandemic’s worst effects on women.
The problem, of course, is that central banks are notoriously male-dominated institutions. Historically, they have never made gender a priority in the design and execution of policies affecting monetary positions, bank regulation, deposit insurance or bond issuance. Changing this pattern will require four shifts in the policy-making process.
Women in the room
First, we need gender-responsive stimulus packages. Governments responded to the crisis with fiscal and monetary packages meant to stabilise aggregate demand. These included tax cuts, loan guarantees, wage protections, discounted utility bills, suspension of social-security contributions and direct cash transfers. Central banks, for their part, expanded their balance sheets to unprecedented levels and at staggering speed, printing money to buy not just government bonds but also corporate financial assets. In many countries, particularly advanced economies, the overall response was massive, because it had to be.
But data gathered through the UN Women and UN Development Programme Covid-19 Global Gender Response Tracker show that only a handful of countries tailored their policies to account for women’s specific needs. The result has been a slower recovery for everyone. As the world prepares for another wave of stimulus spending and investment in reconstruction, it is crucial that these interventions be designed not just with women in mind, but with women in the room.
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Secondly, women need loans, and central banks have an important role to play in how credit is directed to specific sectors. Accordingly, it is important to ensure that financing makes it to sectors where the majority of women work. As more women lose or are displaced from jobs—even in the informal economy—banks will have to reassess and possibly reclassify the segments of their loan portfolios that cater to female borrowers.
These segments—spanning hospitality, food, retail, tourism, domestic services, garment and other industries where women form a majority of the labour force—are generally conceived to be ‘lighter on collateral’. But before the pandemic they had been growing quickly in emerging and developing economies, especially among local banks. That growth was driven as much by a commitment to equality as by the commercial potential of a previously ignored client cohort. If the recovery fails women, banks’ profitability will suffer.
Thirdly, governments need new sources of finance, because fiscal balances were decimated by the pandemic. Public debts have grown exponentially and will need to be rolled over in the next few years, with sovereigns competing for funding in international bond markets. Looking for an edge in that competition, many will resort to thematic bonds earmarked to address environmental and social-development issues.The demand for such securities is large and growing, now that more than 3,000 investment houses (with a combined $100 trillion under management) have signed on to the UN-sponsored Principles of Responsible Investment. But while many private corporations and state-owned enterprises have issued ‘gender bonds’, no sovereign has yet done so. That must change, and when it does central banks should be a part of the process.
Finally, we need better forecasting. Central-bank models, and the policies that derive from them, may be biased and incomplete, because they are based on assumptions that ignore the realities of how households consume, save, invest, borrow and work. For example, most models treat female workforce participation as a binary choice between labour and leisure, rather than a trinary choice also comprising unpaid labour such as childcare.
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Similarly, projections of growth—and thus of money demand and interest-rate transmission—are built on systems of national accounts that do not properly measure the care economy, a fast-growing but mostly non-market sector where women make up most of the workforce. The pandemic, which has led to an explosion of demand for care, has turned that weakness into a major gap.
To their credit, central banks have been quick to recognise the challenges posed by climate change. Some are already arguing for solutions and leading initial reform efforts. But even though gender disparities are an equally systemic challenge, central banks have yet to forge similar partnerships with gender advocates. Such partnerships are urgently needed to inform the design and implementation of global and country-level reforms. The benefits—both for women and men—would be enormous.
Republication forbidden—copyright Project Syndicate 2021, ‘Why we need gender-responsive central banking’