Intensive research has been carried out and is still taking place in the field of detection of counterfeit money. This area of research plays a vital role in the maintenance of consistency in economy and also crime -free society by detecting counterfeit money.

In this paper we have proposed a system for automatic detection of counterfeit notes. This paper is based on the fact that all notes are printed with unique serial number. Every person who is currently using the note for transaction has to register the serial number of the note in his account along with his unique identity number. This serial number is used for validating the notes and data base transactions.