The local currency is always considered to have a constant value. Any
price changes are attributed to fluctuations in the value of the
merchandise, and not to changes in the value of the currency. This is
true even where economic conditions are clearly the reason for the
price change (e.g., where the price of a foreign-made car increases
due to changes in the exchange rate of the country's currency).
See later where he quotes from Chasam Sofer (YD 134) and Igros Moshe (YD 2:114) that our bills and coins are considered currency, as in Talmudic times. Chazon Ish (YD 72:2) concurs.
Thus, inflation or deflation have no affect on the requirement to pay back the exact amount that was borrowed.
source: The Laws of Ribbis: The Laws of Interest and Their Application to Everyday Life By Yisroel Reisman, page 267, footnote 4
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Inflation and deflation clearly occurred in Biblical and Talmudic times, see Melachim II 7:16ff and Yoma 83a top line Shabtai Atzar Peiri and Rashi, ibid.