Help! Section 988 on loan in foreign currencies

[citize...@gmail.com]

I received this loan 10 years ago that I was told was forgiven, but I
didn't have the write-off agreement on paper. Recently, the lender
asked me to pay it back with ballooning value. I am wondering if I can
get some tax deduction from this. I have lived and paid taxes in the US
for the past few years, but when I received the loan I lived overseas
and the money was consumed overseas.

The deal is that I received the loan in a foreign currency A (say
Mexican Peso), and the value was pegged to foreign currency B (say,
Yen) but without interest. It was a deal with the devil. The money
stayed in the bank in Peso, and then there was a Peso devaluation where
its value in Yen became 1/10 of the initial Yen value. That Peso was
then consumed - unfortunately - when it already lost its purchasing
power. A few years afterwards, the Peso recovered and now its value to
yen became 1/7 of the initial value.

So, the time line is like (all values and exchange rates are
hypotetical and simplified):
1. Received 10,000,000 Peso, repayment value pegged to to 5000 Yen.
Peso is stored in the bank and consumed.
2. Devaluation. Zero Peso remains in the bank, debt is still equivalent
to 5000 Yen but now in 100,000,000 Peso. Needless to say, I was broke.
3. I moved to the US, the Peso partly recovered, so debt is equivalent
to 70,000,000 Peso (seven times the Peso value received and consumed).
4. I have been paying taxes in the US for several years, when the
lender asked for debt repayment, in 70,000,000 Peso (seven times the
Peso value received), based on the current exchange rate.

Is there any foreign currency loss that I can deduct, and how?

I am thinking about Section 988 and wondering if I can see the
non-functional currency transaction as:
- borrowed in Yen
- exchanged Yen with Peso
- Peso flops
- Paying in Yen now - realizing currency loss here of 60,000,000 Peso.

thanks a lot for your help!