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Consider a hypothetical situation. Person A lends person B 500 American dollars on 0% interest. Now American government prints more money such that the old 1 dollar is now equivalent 10 new dollars. According to law how much should person B return to person A 500 or 5000 dollar?

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    Do you mean that the American government actually swaps everyone’s currency and savings, giving them ten new dollars for every old dollar, or do you mean that inflation devalues the dollar so that it takes ten dollars to buy what one dollar used to?
    – Mike Scott
    Jan 23, 2020 at 17:57
  • I meant inflation Jan 23, 2020 at 17:58
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    In that case the accepted answer is correct. If you want to protect yourself against inflation, you charge an appropriate rate of interest on the loan — that’s one of the main things that interest is for.
    – Mike Scott
    Jan 23, 2020 at 18:02
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    Maybe make that clear in the question, because the question is completely different from "inflation". The question implies that the government created a new currency to replace the old dollar. Printing money is generally not the problem leading to inflation in the US (it most definitely is elsewhere). If you loan money at 0% interest you have already conceded that you will lose money to inflation (as RonJohn made clear)
    – xyious
    Jan 23, 2020 at 18:02
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    i do not think the debate going on in the comments matters. Time value of money and the risk of loss of real value are realities in our currency system. Unless the government makes a new script that replaces the old script, it does not matter. If I have a US dollar bill from 1980 and a US dollar bill from 2019, they are both worth the same. The fact that in 1980, I could get more stuff (in many but not all categories) with it is irrelevant. The fact that two years ago it could be traded for more or fewer euros or Yen or whatever is also irrelevant.
    – Damila
    Jan 23, 2020 at 20:28

1 Answer 1

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The (written or unwritten, does not make a difference) contract between A and B was for $500. Thus, B pays A $500.

If A is afraid of devaluation, then he must write that into the contract.

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