The Federal Reserve bank creates a large amount of shredded currency each month.  These bills are pulled from circulation because of damage, defacing, or age and instantly shredded.  

We take it.  

We make cool stuff out of it. 

The material on which bills are printed is actually a custom blend of 75% cotton and 25% linen, created by Crane Paper Company exclusively for the U.S. Treasury. This special mixture is known as "rag." It's much more resilient than paper and can't legally be used by anyone outside the U.S. Bureau of Engraving and Printing.

The U.S. Bureau of Engraving and Printing churns out about 38 million currency bills of varying denominations daily, worth in total about $750 million. Printing plants located in Fort Worth, Texas and Washington D.C. use 18 tons of ink per day just to keep up.