A pedestrian walks past a poster advertising money exchange at a local bank in Seoul on Monday. Asian stocks plunged and the dollar sank Monday after JPMorgan Chase said it would buy troubled U.S. investment bank Bear Stearns, signaling to investors the depths of the credit crisis./AP

Experts speculate that the exchange rate will continue its upward trend until the liquidity crisis plaguing U.S. financial firms amid the subprime mortgage crunch is brought under control. Foreign investors meanwhile are dumping Korean stocks and converting the proceeds into U.S. dollars.

An official with Korea Exchange Bank said, "If the threshold of W1,030 per dollar is crossed, then it may be just a matter of time before the exchange rate hits W1,050 per dollar." The prevailing view is that the yen-won exchange rate will also very likely rise higher.

The subprime mortgage crisis in the U.S. has had apparently endless repercussions on the global economy since it was caused by a cash shortage at U.S. mortgage firms in March last year. Experts had at one stage predicted the imminent end of the credit crunch. But it has rekindled when U.S. investment bank Bear Stearns in effect went belly-up.

The Korean economy has been hit hard by several unfavorable external factors, from the subprime crisis to high oil prices and to a strengthening dollar against the won. A bumpy road lies ahead. The government is likely to miss its goal to achieve 6 percent economic growth, create 350,000 jobs and curb inflation within 3.3 percent.

Morgan Stanley Asia chairman Stephen S. Roach told Bloomberg, "The rest of the world remains convinced that this is largely America's problem. This is also likely to be wishful thinking." He firmly predicted that the Asian economy including Korea will be dealt a blow by the U.S. financial crisis.

Hwang In-seong, an economist at the Samsung Economic Research Institute, said a weak won will stimulate exports. But its impact will be felt more in driving consumer prices up, he added. The Hyundai Economic Research Institute in an emergency report Monday said that amid soaring raw material prices and a global economic slump, a weak won will not help the nation post a trade surplus.

Some observers complain that the government is intentionally taking no action against the rising dollar. Asked about the government's response, Kim Kyu-ok, a spokesman for the Ministry of Strategy and Finance, kept saying, "no comment," adding that all other policy makers would make the same answer. It was a far cry from the response in the past, which usually included calling an emergency meeting or easing market sentiment with verbal interventions when the won-dollar exchange rate fluctuated.

A senior foreign currency official told the Chosun Ilbo the plummeting won was a normal result of the law of supply and demand and there was no evidence of speculative investment in the foreign currency market. He hinted that authorities will not intervene in the market for the time being. The official added keeping the won from dipping was difficult but lowering the exchange rate is not.

“Government intervention will easily curb a soaring exchange rate,” he added. In the past, the government has issued foreign exchange stabilization bonds worth several trillions of won whenever the won rapidly appreciated in an attempt to protect exports. Now, by the same token, the government is sitting on its hands based on calculations that a weaker won is better for exports, he added.

(englishnews@chosun.com )