I worked in the currency validation industry for 20 years. The most modern banknote validators that are being used today use 3 colors of visible light
red green and blue, as well as 2 or 3 invisible infrared wavelenghts.
The way the process generally works is only 1 color is switched on at a time.
The reflected light level is sampled with phototransistors through an ADC to the microcontroller. As the bill travels through the validator it is scanned with each color several hundred times a second and the reflected light levels are stored in the microcontroller. When the scan is complete it has a graph stored in memory for each color. It then compares this to a library of bill signatures it has been programmed with. If it finds a close enough match the bill is accepted.