What happens to the real value of debt during excessive inflation?

During periods of excessive inflation, the real value of debt is reduced. This occurs because inflation erodes the purchasing power of money. When inflation rises significantly, the money that borrowers use to repay their loans loses value over time. Although the nominal amount of debt remains the same, the real burden of that debt decreases as the inflation rate increases. Borrowers can repay their loans with "cheaper" dollars, effectively reducing the real amount they owe when calculated against the inflation-adjusted value of money.

For example, if someone owes $100, with high inflation, that $100 may only represent a fraction of purchasing power in the future compared to its value when the debt was incurred. This dynamic typically provides relief to borrowers while posing challenges for lenders, who receive payments that are worth less in real terms. Therefore, the impact of excessive inflation tends to favor borrowers by diminishing the real value of their existing debt obligations.