An improved method and apparatus for discriminating between currency bills (17) of different denominations uses an optical sensing (18) and correlation technique based on the sensing of bill reflectance characteristics obtained by illuminating (22) and scanning a bill along its narrow dimension. A series of detected reflectance signals are obtained by sampling and digitally processing (30), under microprocessor control, the reflected light at a plurality of predefined sample points as a currency bill is moved across an illuminated strip (24) with its narrow dimension parallel to the direction of transport of the bill. The sample data is subjected to digital processing, including a normalizing process, 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.