A traditional belief is that when people die, their spirit lives on and they live a similar life in a netherworld. Like the earth's economy system, money is needed to purchase necessaries of life and the money can be received from their living relatives.
This custom can be traced back to the Eastern Han Dynasty. It is said that a student of Cailun named You Xiucai came up with the idea to burn the joss paper to promote the sales of the paper; he asked his wife to burn the joss paper for him while he faked his own death. By doing this, he tricked the public as when she burned the paper, he pretended to come back to life, claiming that it was due to the joss paper.
Records have shown that this story is simply a folk tale and shouldn't be credited as the first time that joss paper was burned. It is generally believed that the popularity of this custom was in relation with the introduction of Buddhism. In some religions the gods receive burnt sacrificial offerings, therefore this is likely to be the true explanation of why it was burned in the first place.
They are mainly three types of joss paper. The most original type is used to make a coin mould or shape on native paper. When gold ingot shaped native paper was made it was covered with golden joss paper.
As a result of the development in printing technology, joss paper now resembles real paper money. It can also be printed with the issuing bank, the denomination and other typical paper money similarities.