We examine the general equilibrium impact of a private currency. If the government is predatory and has a monopoly over money issuance, it issues too
much money, in order to finance excessive public expenditures. In this context, what are the consequences of introducing a private currency in limited supply but exposed to crash risk? When crash risk is not too large, competition from the private currency constrains the government’s monetary policy and lowers inflation. If the government is very predatory, this improves citizens welfare, but if the government is rather benevolent, competition from the private currency can lower citizens’ welfare.