An algorithm for recognizing banknotes is required in many fields, such as banknote-counting machines and automatic teller machines (ATM). Due to the size and cost limitations of banknote-counting machines and ATMs, the banknote image is usually captured by a one-dimensional (line) sensor instead of a conventional two-dimensional (area) sensor. Because the banknote image is captured by the line sensor while it is moved at fast speed through the rollers inside the banknote-counting machine or ATM, misalignment, geometric distortion, and non-uniform illumination of the captured images frequently occur, which degrades the banknote recognition accuracy. To overcome these problems, we propose a new method for recognizing banknotes. The experimental results using two-fold cross-validation for 61,240 United States dollar (USD) images show that the pre-classification error rate is 0%, and the average error rate for the final recognition of the USD banknotes is 0.114%.