He told the BBC News website: "The government should not have a monopoly to decide what currency there is to spend.
"It would be perfectly possible for people to shop around."
Mr Carswell argues that making a basket of currencies legal tender would deter the government from further quantitative easing - or "printing money" - which effectively reduces its value.
The backbench MP argues that successive British governments have devalued the pound "in order to transfer wealth from the people to the government", and allowing citizens to shop around for currency would hand power back to them.
"If we believe in competition and choice then this is what we should be doing. Is there any good reason why would not do it?" said the Harwich MP.
It gets better ...
Mr Carswell claims the two dominant post-war economic theories - monetarism and Keynesianism - have both failed, and radical thinking is needed amid the ongoing global financial crisis.The article finishes with this:
He accepts that government ministers and the Bank of England would be highly reluctant to relinquish control of the nation's currency, but insists he is serious about the proposal.
Someone at the BBC has been paying attention!Giving citizens a choice of currencies was proposed in a Conservative government Treasury paper in the late 1980s, as an alternative to the single European currency.
But the idea dates back to the early 1970s, when monetarist economist Friedrich Hayek first proposed the denationalisation of currencies.
Prof Hayek - the godfather of Thatcherite economic policy - put the idea forward as a potential cure for inflation, then the biggest threat facing the UK economy.
In a 1975 paper for the Insititute of Economic Affairs think tank, Prof Hayek argues that governments should be stripped of the power to force their citizens to use currency issued by them at a price they specify.
UPDATE:
In a rather dodgy move, the BBC article at the URL I linked to above has been changed. I wish I'd kept a full copy of the original. Here's the current version:Parliament is to debate a call for foreign currencies to be made legal tender in the UK.
Such a move would protect savers by allowing them to hold the currency least likely to be devalued, Tory MP Douglas Carswell told the Commons.
He said people could then "extricate themselves from the monetary masters that hold them all captive".
But Labour's John Mann dismissed the plan, saying Parliament should "defend the great currency sterling".
MPs decided to give Mr Carswell's idea - set out in a 10-minute rule bill - another hearing on 20 January, but it is unlikely to become law.
Mr Carswell, a euroscpetic Conservative who represents Clacton in Essex, said legalising other currencies would allow consumers to shop around for the best deal on goods, possibly via smartphone applications.
'Credit balloon'In the Commons he said the Bank of England's "quantitative easing" programme - effectively "printing money" - had seemed "progressive" but "turned out to be a disaster" which had cut sterling's value.
He added: "A credit balloon was created by reckless management when it came to the money supply."
Mr Carswell claims the two dominant post-war economic theories - monetarism and Keynesianism - have both failed, and radical thinking is needed amid the ongoing global financial crisis.
He accepts that government ministers and the Bank of England would be highly reluctant to relinquish control of the nation's currency, but insists he is serious about the proposal.
Wealthy individuals routinely convert their cash into Swiss francs or other currencies deemed to be safe havens to be then held in bank accounts abroad.
Some large department stores in London take euros and some other foreign currencies, such as the US dollar and the Japanese yen, but the official currency of the UK remains sterling.
No MP objected to holding a debate on Mr Carswell's plan.
However, Mr Mann, who represents Bassetlaw in Nottinghamshire, told the Commons during humorous exchanges: "We should defend the great currency sterling against these demands for euro-fanaticism."
He added: "He [Mr Carswell] could always ask for the Iranian Rial and other currencies to be used.
"[But] when I go to the corner shop to buy my Midget Gems, I wish to use sterling."
'Completely free market'Giving citizens a choice of currencies was proposed in a Conservative government Treasury paper in the late 1980s, as an alternative to the single European currency.
But the idea dates back to the early 1970s, when monetarist economist Friedrich Hayek first proposed the denationalisation of currencies.
Professor Hayek - the godfather of Thatcherite economic policy - put the idea forward as a potential cure for inflation, then the biggest threat facing the UK economy.
In a 1975 paper for the Insititute of Economic Affairs think tank, he argued that governments should be stripped of the power to force their citizens to use currency issued by them at a price they specify.
Neil Mellor, a currency strategist at Bank of New York Mellon, said Mr Carswell's plan would have to be executed on a massive scale for it to have any impact on the economy.
"It doesn't sound like something that would be taken too seriously at the Bank of England, but we will have to see," he told the BBC News website.
Josh Ryan Collins, of the New Economics Foundation, who helped launch the Brixton pound - one of a handful of complementary currencies designed to be spent in local shops within a specific area of the UK - also sounded a note of caution.
"I would have some sympathy with Douglas's position and his critique of the current system, which isn't really democratic.
"But I wouldn't say a completely free market in currency is necessarily the solution."
He said it could increase instability and currency speculation, and greater democratic accountability was needed instead, as well as the break-up of the big banks.
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