I must be retarded because I don't see how this makes a difference.
Even if you're getting 0% interest loan (unlikely) you still have to pay it back, which will eat into future taxation? And if you don't pay it back they would be justified adding duties to all exports, recouping that way, by inflated prices...
Yes. But the amount of gold in the system is always conserved. Monetarily, the fact that it's borrowed is irrelevant.
Also, if the borrowing is used to increase economic activity, it need not eat into future taxes for anyone. The classic example is borrowing to buy upgraded farm equipment, or to irrigate previously-fallow land.
> Assuming they don't find more gold
Orthogonal and thus irrelevant to the question of whether borrowing fundamentally causes inflation.
Consider a kingdom on the gold standard that borrows the gold it spends.
Their actions do not change the monetary base. They do increase the velocity of money, but by no more than had they taxed it (minus wealth effects).