* Reliance on dollar-based oil makes naira hard to gauge
* Dwindling reserves reduce room to defend naira
* Devaluation possible, not a one-way bet -analysts
By Tim Cocks and Chijioke Ohuocha
LAGOS, Feb 28 (Reuters) - "What is a cynic?" asks Cecil Graham in the Oscar Wilde play "Lady Windermere's Fan".
"A man who knows the price of everything and the value of nothing," replies Lord Darlington.
Traders of the Nigerian naira may identify with such cynicism, as they try to determine whether the currency of Africa's second-biggest economy is overvalued.
The naira has taken a beating in dollar terms this year as the United States has started to rein in a stimulus programme that spurred fund flows to emerging markets, and after Nigerian President Goodluck Jonathan ousted respected central bank governor Lamido Sanusi last week.
But does anyone know the real value of the naira? In a country that imports 80 percent of what it consumes and ships back little except oil, which is denominated in dollars, many analysts are unsure.
"I don't think the concept of overvaluation is relevant in an economy where oil accounts for 95 percent of exports and the non-oil export base is constrained by significant ... bottlenecks," is how Standard Bank's Samir Gadio puts it.
The naira's value is crucial to bond investors who have been wooed by Nigeria's high yields in recent years as returns in developed markets were eroded by the financial crisis.
Since a devaluation in November 2011 the central bank has aimed to manage the naira within a band of 150-160 to the dollar. But it is now trading 5 naira outside the band at around 165, despite the bank's efforts to keep the band intact via foreign exchange auctions, which are depleting foreign exchange reserves.
Some analysts expect the Central Bank of Nigeria will be forced to devalue the currency again soon - yet uncertainty about its real value means devaluation is not a one-way bet.
A day after taking over from Sanusi, acting central bank governor Sarah Alade pledged to do everything to support the naira, and stressed there were no immediate plans to devalue.
Sanusi's nominated successor Godwin Emefiele is expected to stay the course.
But they face a three-horned dilemma: spend dwindling reserves, give up and lower the band, or tighten monetary policy considerably by raising interest rates, now 12 percent.
"The naira is overvalued on an (inflation-adjusted) real effective exchange rate basis," said Angus Downie, head of economic research at Ecobank, adding however that the bank might still try to keep the 150-160 band if it believes it has enough reserves to continue supporting its position.
"The options for the (central bank) to maintain the current band are diminishing in line with the fall in net FX reserves," he said, "unless oil prices or oil production increase strongly - both unlikely in the short term."
The naira hit a record low of 169 to the dollar last week after Jonathan suspended Sanusi, a move that came after the central bank chief, whose term was due to expire in June, had denounced huge leakages in government oil revenues ahead of 2015 elections.
The president denied Sanusi's suspension was related to his interference in politics but the decision spooked investors and the naira has now lost 3.6 percent this year.
Those who do subscribe to the notion of a correct naira value mostly believe it still has far to fall. The bank's resources to support the currency are weakening: liquid reserves have slipped by $3.26 billion, or 8 percent, since the start of 2014 to $39.2 billion - or by about $57 million a day.
Analysts at Renaissance Capital said this week that reserves could fall to $35 billion before the bank would be forced to give up the game and devalue.
Gregory Kronsten at FBN capital thinks "at the current pace of depletion, the tipping point would come within weeks."
RATE RISES PROBLEMATIC
Not everyone agrees the naira is overvalued. Alan Cameron at the London branch of Nigeria's FCMB says the argument over inflation-adjusted exchange rates is fallacious because demand for imports is inelastic in a country like Nigeria that produces so few goods. Reserves' cover is good, he says.
The bank's other option - to hike interest rates - is also problematic, and Melissa Verreynne of NKC Independent Economists thinks even if it takes that route, it may not work.
"At some point, the authorities will have no choice but to devalue," she says. "A 100 basis point increase in the policy rate will not be enough to attract foreign investors - there are too many other factors working in the opposite direction."
Few analysts will go on record saying where the band should be moved - everything from 170 to 190 is touted privately.
Portfolio outflows aren't helping: foreign investors' holdings of Nigerian bonds - which grew nearly fivefold in 12 months after the country was included in a J.P. Morgan local currency bond index in 2011 - have plunged by $2 billion since the start of January, to $7 billion as emerging markets became more volatile.
So the central bank might be seen to be right to defend Nigeria from the whims of hot money.
But in the long run, the naira's troubles boil down to the same thing so many of Nigeria's problems do: overdependence on oil. As long as shipping containers go back empty after bringing goods into the country, while only oil tankers go out full, the naira will continue to be vulnerable.
"Being overvalued ... doesn't mean much for an economy with an oil-export base," says Gadio. "There are no gains in terms of external competitiveness if the currency is devalued."