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New Zealand's 5c coin will be withdrawn and new 50c, 20c and 10c coins introduced in July 2006, the Reserve Bank announced today.

In its decision to modernise silver-coloured coins, the bank said $1 and $2 dollar coins will be retained, as well as existing images on the 50c, 20c and 10c coins, including that of the Queen.

Banks and shops will continue to accept the current coins for three months after July 2006, the bank's currency manager, Brian Lang, said.

The new 50c, 20c and 10c coins will be smaller and lighter, with the 10c coin a copper colour.

As part of the phasing in, the public will be given the new coins as change when they shop and bank after July 2006.

Electronic transactions, such as eftpos, would not be affected by the withdrawal of the 5c piece, the bank said.

The bank described the smallest coin as "just a nuisance" and of no real value in terms of people making transactions.

The Reserve Bank issued about thirty million 5c coins a year at a cost of just over $1 million, yet they did not circulate.

Most retailers use a Swedish system of rounding prices up or down to the nearest 5c. Withdrawing the 5c piece means prices would be rounded to the nearest 10c.

Yesterday, the Retailers Association said the resulting pricing model would turn off customers, and there was a potential for prices to go up.

"If there is no 5c coin it makes it very difficult for retailers to use the $.95 or $1.95 price point," association chief executive John Albertson told NZPA.

Rounding up those prices would be unattractive to customers, while rounding down would be a significant movement on margins for many retailers, he said.

Owing to past high inflation, the 5c coin is now worth less than half what 1c was worth in 1967 -- few people would now bother to bend down to retrieve the little coin from the footpath.

Graham Fabian, a spokesman for Foodstuffs Auckland, which operates New World, Pak'nSave and Four Square supermarkets in the upper North Island, said the impact of removing the coin would be "not a hell of a lot".

"All we would do is use the Swedish rounding system to the nearest 10c -- cash transactions represent only 27 per cent of our total sales."

The Vending Boys co-owner Andy Parsons, who operates 150 drink vending machines in the greater Wellington area, said while many machines did not accept 5c pieces, changes to the larger silver coins would cost him.

"A lot of older equipment will instantly become obsolete. It's about $1000 for a new coin mechanism, but you may have some marginal sites that only just make you that much a year," he said.

However, the Reserve Bank said in November fears over retail price rises were unfounded.

After 1c and 2c coins were withdrawn in 1990, a survey by the Consumers Institute showed prices actually decreased slightly, and Mr Lang said he believed competition would keep retailers honest when rounding up or down.