A pencil and bill are borrowed. Nothing is added or taken away. The bill is folded in half. The pencil is put inside the bill. The bill is casually shown on both sides showing the pencil inside. He takes the bill in his left hand, and with his right hand, he grabs the pencil. He spread the bill into a V shape and uses the pencil as a magic saw. It slowly melts through the center of the bill. The bill is snapped open, to show no tears or slits. Everything is examined and given back to the spectator.
To start out, borrow a pencil and a bill. It is easier to do if it is just a regular pencil, but it can be done with a pen. Also make sure that the bill is new and crisp. This is very hard to do with a "soft" bill. After you have borrowed the bill fold it in half. This is all under cover of patter.
Now, after it is in half, you are going to secretly make another fold in the bill. This fold is going to be about a little over a quarter of an inch. Make sure it is a nice good crease. Unless your audience notes how long a bill is when it is folded in half a lot, you will not have a problem with the shortness of the bill.
Take the pencil in your right hand and the bill in your left. Spread the bill open by pulling in with your thumb and pushing out with your fingers. This makes a V in the bill. This just shows to the spectators that you need an opening to put the pencil into the bill. What you will really do is put the pencil into the secret fold. Figure 1 shows how the pencil hangs from the fold.
After the bill is in the fold, you can let go of it. This is really a neat thing. You can show both your hands empty, and grab the bill by the tips of your fingers with your right hand. This is already an excellent display, and most people would really believe it is in the bill. The people that will most likely want to see the other side are magicians, but it is nice to show both sides to everyone. Which is why I do this:
Take everything into your left hand, orienting the pencil vertically, so the bill is horizontal. Clip it in-between your right hands first finger and middle finger. Figure 2, shows the position of the hands.
Move your right hand up and down showing it going through the bill. Now you will let go with your left hand, and flip your right hand over briefly while gesturing with it up and down. Figure 3.
This creates a blur that hides the line of the fold, and shows that the pencil is in the bill. Do this very casually and quick, and don’t put any attention on it. Don’t run when your not being chased.
Turn the bill back over. Grab the bill by the top, with your left fingertips. Position your hand so that the fingers cover the pencil protruding from the fold. Now spread the bill into a V once more. While it is spreading, grab the pencil with your right hand. Now the fold is not doing any good, so the right hand is holding the pencil now.
You are done now. The rest is just presentation. Grab the pencil, and make a sawing action as if you were sawing through the bill. Figure 4.
Once you reach about half way, just smoothly pivot the pencil out from behind the bill. It really looks great, because the V masks everything, but yet it still looks like it is going through the middle. Once it is through, give them back their pencil, then snap open the bill showing no cut or slit.
One problem now, is that if you were to hand them their bill right away, there will be a noticeable line and crease, and if they fold it in half, the secret fold will be right there. One way I clean up that is by crinkling up their bill into a little ball, and tossing it to them. Another way is to fold it into the smallest it can get and hand it back.