The National Stabilization Fund was introduced in February 2000 with the National Stabilization Fund Act. According to the act, the purpose of that fund is to stabilize Taiwan's stock market if it is disturbed by irregular factors. Those factors can originate within Taiwan or come from abroad.
Before the National Stabilization Fund was created, the government had allocated emergency funds to stabilize Taiwan’s financial markets on two occasions. One was in 1996, when panic among investors was triggered by China’s missile test. The other one was in 1997, when the local stock market was shaken by the contagion of the Asian financial crisis. These actions helped maintain public confidence in Taiwan’s economy. But critics said that the emergency measures interfered with market mechanisms. They also said that the lack of a monitoring system could lead to the illegal use of such funds.
After more than six months of review, the legislature approved the National Stabilization Fund. The fund controls a maximum of NT$500 billion (US$15 billion). Of that, NT$300 billion comes from state-owned funds, while the remainder can be borrowed from banks.
The stabilization fund was first used in March 2000 during that year's election season. NT$50 billion was injected into the stock market to stabilize it during uncertain political conditions: Taiwan's first transfer of power in over 50 years.
Another NT$20 billion was injected into the market in October of the same year. That's when the government decided to stop construction on a half-completed new nuclear power plant, causing much political controversy.
The fund was also used in 2008 to respond to the growing financial crisis that swept the world that year. But the government has traditionally been reluctant to inject funds into the market. Officials say the Taiwan stock market is becoming more mature, and in the future, it will be less easily affected by world upsets.