I have found another problem. PyOS_Readline can be called from two different places – from Parser/tokenizer.c:tok_nextc (by REPL), which uses sys.stdin.encoding to encode prompt argument, and from Python/bltinmodule.c:builtin_input_impl (by input() function), which uses sys.stdout.encoding. So readline hook cannot be implemented correctly if sys.stdin and sys.stdout don't have the same encoding.

Either the tokenizer should have two encodings – one for input and one for output - or better no encoding at all and should use Python string based alternative to PyOS_Readline, which could be added.