I think a big part of the hesitation to change currencies here, whether coin or paper, is the installation of machine readers (meaning vending machines, atms, etc). Obviously there are vending machines in other countries that handle different size bills so the problem isn't insurmountable, and it might generate some jobs (though I would consider it busy-work). I don't think any machines take pennies any more. A pay phone might take nickels, but that's about it.
I figure prices can stay the same. If you're paying by card (electronically) or by check then the price stands. If you're paying in cash it's rounded to the nearest small denomination (say $0.10 in this case). If the shop wants to take the policy that it rounds up at 0.03 then so be it, but state that up front.