The mooted Atlantic competition would also feature clubs from Sweden, Denmark, Belgium and Holland and be played on a weekly basis, but critics fear such a move could have fatal consequence for Scottish league football.
Smith, however, believes inaction by the Old Firm at this stage would be the more dangerous path to take.
"I take the opposite view to a lot of people; I think if we don't [leave the SPL], Scottish football is in danger of dying," he said.
"We are already seeing a downturn financially with our top players moving out of the SPL. Both Rangers and Celtic need owners to subsidise the team and, in any business, that's not healthy.
"There is this idea that Rangers and Celtic are only looking after themselves, but if we don't keep a high profile for our game, across Europe and so on, then we will be even worse off. We will be dragged down.
"Less than 20 years ago we could compete with English teams. Now that is impossible and it will only continue.
"SPL clubs are losing players to the Coca-Cola Championship and League One. That is a measure of a steady decline in standards and finances."
The Atlantic league proposal has the support of Dutch football association president Michael van Praag, who plans to lobby UEFA in a bid to resurrect a proposal first mooted in the late 1990s.
Celtic chief executive Peter Lawwell last week branded the concept "Frankenstein" but Rangers counterpart Martin Bain has welcomed the moves to resurrect it.
UEFA said on Wednesday they would be opposed to an Atlantic league, but Bain's view is shared by Dutch sides Feyenoord and PSV Eindhoven, Belgian outfit Anderlecht, Danish side Brondby, and Swedish club AIK Stockholm.
Reflecting on the concept of the Atlantic league, Smith added: "It would seem to be a natural progression.
"Just how it will happen is the thing that is up for debate as much as anything else.
"I don't think there is any doubt that at some stage in the future it will happen, it is just how it will happen."
He added, however, that the Old Firm would seek to keep a presence in Scottish football if they did indeed join a European league.
"Rangers and Celtic would still field teams in Scotland even if they left to join a European league," he said.
"They might have to start at the bottom division and work their way up again, but they will always have a presence in Scottish football."
He added: "Scottish football will survive without the Old Firm.
"Other teams will have the opportunity to be successful. Rangers and Celtic leaving to join a European league does not exclude the possibility that other Scottish teams could get there."
Smith conceded the idea of a broader European league involving elite continental clubs was unlikely to become a reality, meaning bigger teams from leagues with a lower profile needed to explore the option of striking out on their own.
"In the bigger leagues, there is not any real need for teams to leave the leagues they are in; England, Spain, Germany and Italy," Smith said. "They have an ability to finance and keep the clubs at a high level.
"The problems that are developing are that the bigger clubs in smaller countries are having a major struggle to keep up.
"It is not just Rangers and Celtic, it is bigger clubs all over Europe."
The Rangers boss also believes the chances of English top-flight teams accepting the Old Firm into the fold are slim, saying: "I don't see that a league would ever vote for two teams that are going to be bigger than the majority of teams that are in it."