An improved method and apparatus for discriminating between currency bills of different denominations uses an optical sensing and correlation technique based on the sensing of bill reflectance characteristics obtained by illuminating and scanning a bill. A series of detected reflectance signals are obtained by sampling and processing the reflected light as the currency bill is moved across a light strip. The sample data is subjected to processing, whereby the reflectance data represents a characteristic pattern that is unique for a given bill denomination and incorporates sufficient distinguishing features between characteristic patterns for discriminating between different currency denominations.

A plurality of master characteristic patterns are generated and stored using original bills for each denomination of currency to be detected. The characteristic pattern for a scanned currency bill is compared to each of said stored master patterns to determine the degree of correlation therebetween, and thereby to identify the denomination of said currency bill.