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There is now a considerable literature that argues that an external threat weakens autocracies and advances the process of democratization. This paper shows that in the face of an external threat an autocratic regime can become even stronger domestically by using foreign debt and thus increasing its capacity for repression without significantly increasing redistributive inequality. However, borrowing in foreign currencies exposes autocracies to the risk of sudden stops and default. Hence their caution in resorting to foreign debt. Behaviour of this type was at the origin of Japan's late adoption of the gold standard, even though the Meiji regime was aware that membership was essential for the economic and military strengthening of the country.
