This paper, presented at the European Economic Association's tenth annual congress in Prague in 1995, explores models of currency crises with self-fulfilling features. The author, Maurice Obstfeld, discusses how a government's discomfort from speculation against its currency influences the strategic incentives of speculators and the potential for multiple currency-market equilibria. The paper reviews a prototype model where high unemployment can cause an exchange-rate crisis with self-fulfilling characteristics and examines other self-reinforcing mechanisms. Recent econometric evidence supports the practical importance of these mechanisms. The introduction highlights the European Monetary System (EMS) crisis and the failure of classical theories of rational speculative attack, suggesting that even sustainable currency pegs can be attacked and broken. The strategic foundations of currency crises are explored through a game-theoretic framework, where the government's commitment to defending the exchange rate and the actions of private traders determine the outcome. The paper also presents a fully-articulated model based on unemployment, demonstrating how multiple equilibria can be ranked by the degree of market skepticism and the consequent worsening of employment. Finally, the paper discusses alternative mechanisms such as public debt, banks, income distribution, real interest rates, and spillovers and contagion effects, and provides early empirical evidence supporting the self-fulfilling nature of currency crises.This paper, presented at the European Economic Association's tenth annual congress in Prague in 1995, explores models of currency crises with self-fulfilling features. The author, Maurice Obstfeld, discusses how a government's discomfort from speculation against its currency influences the strategic incentives of speculators and the potential for multiple currency-market equilibria. The paper reviews a prototype model where high unemployment can cause an exchange-rate crisis with self-fulfilling characteristics and examines other self-reinforcing mechanisms. Recent econometric evidence supports the practical importance of these mechanisms. The introduction highlights the European Monetary System (EMS) crisis and the failure of classical theories of rational speculative attack, suggesting that even sustainable currency pegs can be attacked and broken. The strategic foundations of currency crises are explored through a game-theoretic framework, where the government's commitment to defending the exchange rate and the actions of private traders determine the outcome. The paper also presents a fully-articulated model based on unemployment, demonstrating how multiple equilibria can be ranked by the degree of market skepticism and the consequent worsening of employment. Finally, the paper discusses alternative mechanisms such as public debt, banks, income distribution, real interest rates, and spillovers and contagion effects, and provides early empirical evidence supporting the self-fulfilling nature of currency crises.