This paper examines currency crises with self-fulfilling features, analyzing how government discomfort from speculation influences strategic incentives and multiple equilibria in currency markets. It reviews self-reinforcing mechanisms and presents recent econometric evidence supporting their importance. The paper discusses a model where high unemployment may lead to exchange-rate crises with self-fulfilling characteristics. It also explores other self-reinforcing mechanisms, such as public debt, bank pressures, income distribution, real interest rates, and spillovers and contagion effects. The paper highlights that even sustainable currency pegs may be attacked and broken, emphasizing the government's continuous comparison of the net benefits from changing the exchange rate versus defending it. The model shows that the government's commitment to defending the exchange rate can be influenced by macroeconomic fundamentals, which determine the range of possible equilibria. The paper presents a game-theoretic model with three agents, a government and two private holders of domestic currency, illustrating how strategic interactions can lead to different outcomes. The paper also discusses an example based on unemployment, where the government's objectives are explicitly spelled out. It shows that the state of fundamentals determines the existence and multiplicity of attack equilibria. The model incorporates a loss function that the government minimizes, considering output, inflation, and exchange rate changes. The analysis reveals that different equilibria entail different probabilities of collapse, and that the government may be powerless to enforce its preferred equilibrium if market expectations coalesce around an inferior one. The paper also discusses alternative mechanisms and early evidence, including public debt, bank pressures, income distribution, real interest rates, and spillovers and contagion effects. It notes that empirical work on self-fulfilling crises is suggestive but still at an early stage, with findings indicating that speculative attacks may involve self-fulfilling elements. The paper concludes that understanding these mechanisms is crucial for analyzing currency crises and their implications for economic policy.This paper examines currency crises with self-fulfilling features, analyzing how government discomfort from speculation influences strategic incentives and multiple equilibria in currency markets. It reviews self-reinforcing mechanisms and presents recent econometric evidence supporting their importance. The paper discusses a model where high unemployment may lead to exchange-rate crises with self-fulfilling characteristics. It also explores other self-reinforcing mechanisms, such as public debt, bank pressures, income distribution, real interest rates, and spillovers and contagion effects. The paper highlights that even sustainable currency pegs may be attacked and broken, emphasizing the government's continuous comparison of the net benefits from changing the exchange rate versus defending it. The model shows that the government's commitment to defending the exchange rate can be influenced by macroeconomic fundamentals, which determine the range of possible equilibria. The paper presents a game-theoretic model with three agents, a government and two private holders of domestic currency, illustrating how strategic interactions can lead to different outcomes. The paper also discusses an example based on unemployment, where the government's objectives are explicitly spelled out. It shows that the state of fundamentals determines the existence and multiplicity of attack equilibria. The model incorporates a loss function that the government minimizes, considering output, inflation, and exchange rate changes. The analysis reveals that different equilibria entail different probabilities of collapse, and that the government may be powerless to enforce its preferred equilibrium if market expectations coalesce around an inferior one. The paper also discusses alternative mechanisms and early evidence, including public debt, bank pressures, income distribution, real interest rates, and spillovers and contagion effects. It notes that empirical work on self-fulfilling crises is suggestive but still at an early stage, with findings indicating that speculative attacks may involve self-fulfilling elements. The paper concludes that understanding these mechanisms is crucial for analyzing currency crises and their implications for economic policy.