When short-term dollar lending markets shut down across the world and the dollar surged, the logic of the won-dollar carry trade went abruptly into reverse. As Korean businesses scrambled to cover their dollar exposure, a disastrous cycle ensued. Preemptive buying of dollars led to an immediate collapse in the value of the won. When national currency holdings slid perilously close to the psychological threshold of $200 billion, that added to the panic.
