The difficulty of sustaining sovereign debt in standard reputation models is well known (Bulow and Rogoff, 1989). Can reputation then sustain nominal sovereign debt (i.e., debt issued in the debtor country's currency) that is subject to not only default risk but also the risk of opportunistic inflation? Under the standard assumption of incomplete markets, I show that the answer is yes. Nominal debt and counter-cyclical inflation allow more hedging against economic fluctuations than real savings does. Thus, the loss of either repayment or monetary reputation severely affects the government's ability to smooth consumption. The model offers a simple explanation for the Bulow and Rogoff critique, and at the same time helps explain why most sovereign bond issuances (including those from emerging markets) have been nominal. The model also predicts that it is optimal for a government to simultaneously borrow (issue bonds) and save (accumulate foreign reserves), as observed in data.