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It is presumed that ゑ represented [we] (listen) and that ゑ and え indicated different pronunciations until somewhere between the Kamakura period and the Taishō period when they both came to be pronounced as イェ [je] (listen), later shifting to the modern エ [e]. Along with the kana for wi (ゐ in hiragana, ヰ in katakana), this kana was deemed obsolete in Japanese in 1946, and replaced with え and エ. It is now rare in everyday usage; in onomatopoeia or foreign words, the katakana form ウェ (U-[small-e]) is preferred, as in "ウェスト" for "west".
The kana still sees some modern-day usage. Ebisu is usually written "えびす", but sometimes "ゑびす" like Kyōto Ebisu Shrine (京都ゑびす神社?,Kyōto Ebisu Jinja), and name of the beer Yebisu(ヱビス?), which is actually pronounced "Ebisu". The Japanese title of the Rebuild of Evangelion series is Evangelion: New Theatrical Edition(ヱヴァンゲリヲン新劇場版?,Evangerion Shin Gekijōban). Katakana ヱ is sometimes written with a dakuten, ヹ, to represent a /ve/ sound in foreign words; however, most IMEs lack a convenient way to write this and the combination ヴェ is far more common.
Hiragana ゑ is still used in several Okinawan orthographies for the syllable /we/. In the Ryūkyū University system, ゑ is also combined with a small ぃ, ゑぃ/ヱィ, to represent the sound /wi/. Katakana ヱ is used in Ainu for /we/.