In a theoretical sense, you are right.

The life of most currency notes is bank to customer to merchant to bank, and the bank could just track serial numbers to figure out your spending habits.

Practically, it would make little sense. The actual life of most currency notes is bank1 to customer to merchant to bank2, and there is a large probability that bank1 and bank2 are different entities. And then, so many more people use the credit card system, and it is so much easier to track people there, that the ROI on tracking people using cash would be low.

I would be very surprised if any bank tried to scan currency note serial numbers.

Is the probability that large for bank1 vs bank2? There’s only a few major banks left. Chase has so many ATMs it’s hard to compete with the access.