The money is not transferred, it is absolutely lost.
In Aegis, the idea of the mina loss was to make people fear death and consider what it means to enter into dangerous situations. At the time also, a King would be insane to have 168,000 minas on his account. Realizing that things such as gold and diamond have inherit value, he would have spent the vast majority of that money on buying large quantities of diamond and gold blocks, effectively freezing his money into item form, which is then placed in a vault. Realize: diamond and gold blocks aren't the actual currency, but they can be exchanged into currency due to their inherit value and so are a means of storing wealth. In addition, Aegisians propelled by this fear of death would buy a house, and buy diamonds and gold ingots/blocks in order to save their wealth in a similar way, but on a much smaller scale. Having a house in Aegis was when you 'won the game'.
In this way, losing minas for dying would instigate a kind of item-currency that you propose, with some differences.
EDIT: Also, diamond and gold blocks were immune to mina wipes, which were common in early Aegis due to plugin issues.