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According to Daron Acemoglu & James A. Robinson, the origin of prosperity within a nation can be explained by its institutions.

It's the institutions that lay the necessary foundation for communities to thrive, or crumble. The writers of ''Why Nations Fail'' provide us with many real world examples, that support their simplistic hypothesis. Basically, they argue that there are inclusive and extractive institutions that govern economics and politics. The prosperous nation is characterized by both its inclusive political, and inclusive economic institutions. In other words: ''a level playing field''. When you find yourself in a democratic society, that has an open labor market, good chances are that you live in a prosperous nation.

Now, my intention is not to do a summary of the book. I've not even finished it yet. But I would like to highlight the analogous power of this theory, and apply it to the cross-border payment industry.

As many of you that are interested in Ripple and XRP probably already know, a handful of large correspondent banks play a vital role in today's cross-border payment industry. These large institutions provide liquidity on behalf of other financial institutions.

''A correspondent account is an account established by a banking institution to receive deposits from, make payments on behalf of, or handle other financial transactions for another financial institution.''

The problem with this system is that it's highly extractive! Let me explain why this is according to the writers of ''Why Nations Fail''..

First of all, the system is centralized. A few giants process the majority of transactions (on behalf of other financial institutions). Players that require these services simply don't have the freedom of choice. This gives the correspondent banks a lot of power.

Secondly, there's hardly any innovation or creative destruction. Applying this could potentially cost them market share, and profits.

The industry is depending on them to disrupt, or not. And, as the correspondent bank's only interest is to make a profit, he'll not be interested in doing anything that could endanger his monopoly position.

One of the things that the writers of ''Why Nations Fail'' conclude, is that extractive institutions can experience short cycles of growth, but the growth is never sustainable (Soviet-Union).. Right now, technological innovation in the form of Decentralized Currencies, promises a significant contender to the stagnant correspondent banks. Not only does this new technology offer us a way to do the same things more efficient, and at a lower cost. But it could also potentially disrupt the whole ''political'' landscape of the cross-border payment industry. No more monopoly for the giant few.

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