We propose a theory of domestic and foreign currency debt and limited commitment to exchange rate and debt repayment policies. We show that while exchange rate depreciation can be costly, it also reduces the real value of domestic-currency debt and helps smooth consumption without the repercussions of default. In times of exceptional liquidity strain, we demonstrate that the government can face lower bond spreads by inflating the local-currency debt through a moderate currency depreciation, even when the government’s ability to issue local-currency debt is constrained. Our model provides new insights into the long-held views of the "original sin" and its "redux".