What effect would removing the lowest denomination currency have? Here in New Zealand our lowest denomination coin is 10c after the 5c was removed about 10 years ago. I think generally the public is pretty happy about the move. 

It's quite a common argument to remove the penny from circulation in the United States. The main argument being that pennies are expensive to produce, are virtually worthless, and tie up time when they're given as change. The argument is that they don't actually serve the purpose of currency very well in terms of easily transferring value, because their value is so small for the effort of using them. 

The question I have is, what economic effect would removing the smallest denomination currency have? 

Things to consider are:


Immediate rounding on smaller items (eg. newspapers). 
Less piggybanking as pennies are no longer lost or stuck in collection jars. 


I guess the question is whether removing lowest denomination coins has an inflationary effect.
The practice of rounding to the smallest currency unit is called Swedish rounding. I know of a few papers that discuss likely economic concequences. 

Eliminating the Penny from the U. S. Coinage System: An Economic Analysis Lombra (2001) 

Time to Eliminate the Penny from the U.S. Coinage System: New Evidence Whaples (2007)

Pennies, Pricing, and Rounding: Is All the Relevant Analysis in? Lombra (2007)