I offer a novel explanation for currency risk premia. In bad times, the U.S. dollar tends to strengthen, weakening the currencies of countries with large amounts of dollar-denominated debt. Therefore, high-dollar-debt currencies are bad hedges and have to offer high risk premia. My empirical findings support this idea. First, dollar-denominated net external debt relative to GDP (USDebt) captures the variation in currency risk premia. Second, higher-USDebt currencies appreciate more against the dollar after expansionary U.S. monetary policy shocks, which weaken the dollar, and they depreciate more in flight-to-safety episodes, which strengthen the dollar. Third, higher-USDebt countries issue more debt after expansionary U.S. monetary policy shocks. To better understand the mechanisms at work, I develop a simple segmented-market model with financial frictions and currency choices.