let doesn't work when used with -XRankNTypes

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Consider the following minimal example:

{-# LANGUAGE RankNTypes #-}

module Test where

class C w

data A = A (forall u. C u => u)

x :: forall u. C u => u
x = undefined

a = A x

This typechecks fine, as expected. However, if a is refactored to use a let statement:

{-# LANGUAGE RankNTypes #-}

module Test where

class C w

data A = A (forall u. C u => u)

x :: forall u. C u => u
x = undefined

a = let x' = x in A x'

It suddenly fails to typecheck with the following error:

test.hs:12:14: error:
    * No instance for (C u0) arising from a use of `x'
    * In the expression: x
      In an equation for x': x' = x
      In the expression: let x' = x in A x'
   |
12 | a = let x' = x in A x'
   |              ^

test.hs:12:21: error:
    * Couldn't match expected type `u' with actual type `u0'
        because type variable `u' would escape its scope
      This (rigid, skolem) type variable is bound by
        a type expected by the context:
          forall u. C u => u
        at test.hs:12:19-22
    * In the first argument of `A', namely x'
      In the expression: A x'
      In the expression: let x' = x in A x'
    * Relevant bindings include x' :: u0 (bound at test.hs:12:9)
   |
12 | a = let x' = x in A x'

Why is this happening? Doesn't this violate equational reasoning?

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n. m. could be an AI On BEST ANSWER

This is the result of the dreaded monomorphism restriction. Enabling XNoMonomorphismRestriction should cause this to compile.

a = let x' = x in A x' is not equivalent to a = A x, because under monomorphism restriction x' in let x' = ... is monomorphic, but A requires a polymorphic argument.