I wonder what the process is for paying back the Nominal. Surely Pound Sterlings in 1720 had an entirely different value than today (as has pretty much every other currency, in case Pounds was not the currency for this particular debt).
However, it is all a bit immaterial. If the debt was denominated in pounds sterling, then it will be repaid in pounds sterling. If it was in guilders, then it will be repaid in guilders (or in sterling, at whatever the current nominal sterling/guilder exchange rate is).
There's Angus Maddison's history of GDPs dating to the year 1.
Gregory Clark of UC Davis has compiled a price history of England dating from 1209 to 1914:
http://www.econ.ucdavis.edu/faculty/gclark/papers/Agprice.pd...
Generally, there are commodities with fairly well-established prices and costs, including food and energy. In particular, food as a share of average wages is a reasonable proxy over time.
Another argument is that money should ultimately be considered to be backed in energy units, an idea I've traced to H.G. Wells and a 1914 short story. It appears subsequently in Arthur C. Clarke, R. Buckminster Fuller, and Kim Stanley Robinson's writings.
Clarke was quite the fan of Wells.
Compared to what? Other goods.
So, value of pounds is determined by its purchasing power
I have a friend who once lent me money in one currency, but denoted the debt in "in X Euro or (X Euro in Yen at lend date), whichever is worth more", which I'm pretty sure is the best way to deal with inflation problems as a lender.
Why stop at 2 currencies? Why not specify the debt in a large number of currencies that take the value at whichever is ultimately worth more? Of course this sort of hedging is good for the lender but it would be horrible for the borrower. I guess if you were desperate for the loan (or he was giving a really favorable rate) it's probably worth it, but I've never heard of a lender trying to hedge exchange rates in this way. But then again maybe I'm unaware of some of the games people have to play with other currencies since I mostly only have to deal with the dollar.
What is interesting is the different types of 'lender'. Banks are lending money they create by fractional reserve, and will pay a lower interest on those deposits than the lent money, so they don't really care about inflation.
A wealthy individual investing in bonds would be a different prospect. But bond prices go up and down based on how the yield compares to interest rates. If I understand correctly lowering interest rates makes the bond worth more.
Any long term debt for 100's years ago is eroded by inflation but by the same token the lender probably profited from all the interest years ago, so the diminishing returns now are just some left over pocket money.
In reverse it is like a mortgage where you can go interest only and have a more modest mortgage in 10 years time, but I don't think that means the bank is the loser.
If you are going to lend money rather than putting excessive terms just factor the inflation risk into the interest rate, and diversify into other assets. Owning some shares, real estate or gold, or foreign currency bonds.
https://en.wikipedia.org/wiki/Russian_ruble#Post-Soviet_rubl...
https://a248.e.akamai.net/7/1635/50139/1d/origin.nbclearn.co...
One thing the United Kingdom of Great Britain really excels at, is continuity of government. It would be much more difficult for, say, Germany or France to deal with debts from 1720, considering they went through several revolutions and dissolutions and likely defaulted or simply ignored previous obligations at various points.
Although there has been a huge amount of inflation since then you'd expect that the interest payments have more than made up for this.